Governors Tell Gringrich: "Bankruptcy Is Not For Us"

No thanks, Mr. Gingrich, say the U.S. state governors, we can manage our finances without having the threat of bankruptcy imposed on us. Two weeks ago I wrote about a proposal by the former Speaker and apparent presidential hopeful's suggestion that in order to fix the large problem of unfunded pension liabilities, states should be able to petition for bankruptcy and have the federal courts work out their fiscal problems. The idea is so illogical and impractical it's hard for me to know where to begin taking it apart, but the National Governors Association and National Conference of State Legislatures have written to Congress, essentially asking everyone to drop the issue and let them get on with the hard work of balancing their budgets. (Thanks to Merrill Goozner for reporting this in his GoozNews blog on TheFiscalTimes.)

As federal bankruptcy law now stands, states cannot petition for bankruptcy, although cities and state agencies can. Enabling states to do so would require a huge legislative battle, but more important would be a terrible embarrassment to our country's image in both a political and financial sense.

Former Speaker Gingrich is likely using the issue as an attention-getter for his presidential ambitions, with the group of voters who are calling for government austerity now -- without any of the parties putting much apparent thought into how it would actually be achieved.

The governors say they don't want bankruptcy, and moving in that direction would be an abdication of their obligations as elected officials. From the letter to Congress from the governors and legislators:

Allowing states to declare bankruptcy is not an authority any state leader has asked for nor would they likely use. States are sovereign entities in which the public trust is granted to its elected leaders. The reported bankruptcy proposals suggest that a bankruptcy court is better able to overcome political differences, restore fiscal stability and manage the finances of a state. These assertions are false and serve only to threaten the fabric of state and local finance.

State finances have gotten out of hand, and in a big way. Merrill Goozner points out:

The Great Recession hammered state finances, which are largely dependent on income and sales tax collections. A Center for Budget Policy and Priorities report released last month showed 44 states with a collective $125 billion shortfall this year.