This is a very interesting article by Jeb Bush and Newt Gingrich on why
Congress should enact a new Bankruptcy Code chapter to allow states to
file bankruptcy. One of the interesting things about the article is who it is written by.
There have been other scholars to opine that states should be allowed
to file bankruptcy, e.g., David Skeel. But this is the first time I have
seen conservative pundits with a significant following express the same
opinion. Usually, conservatives are seen as opposed to bankruptcy.
The article addresses probably the biggest financial obstacle faced by
state governments: union agreements and the associated pension obligations.
When times were good, states entered into lavish union agreements. Now
that we are in a fiscal downturn, those agreements are unsustainable.
The question is how to get out of them. Apparently, Messrs. Bush and Gingrich
believe that the best method is to allow those states to file bankruptcy.
Chapter 9, Municipal Bankruptcy, has worked well for several municipalities
that had the same problem, although on a smaller scale, and it appears
there is a growing chorus of those who believe that it will work well