Jeb Bush & Newt Gingrich Push for State Bankruptcy Code Provision

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 for states.

Categories