Report: States don’t need bankruptcy option
Despite the struggle that most states are experiencing to balance their budgets during the recession, a bankruptcy option for states is not needed, according to a report from the Lexington, Ky.-based Council of State Governments (CSG) and several other government organizations. In fact, allowing states to declare bankruptcy could cause harm in the long run by increasing fears that they could default on their debts.
CSG’s “Facts You Should Know: State and Local Bankruptcy, Municipal Bonds and State and Local Pensions” states that, even through this difficult financial time, states “have never contemplated walking away from their obligations to residents or the bond markets by requesting that the federal government allow states to receive bankruptcy protection.” Instead, state governments are taking other steps to address their debt, according to the report. For example, in 2010, at least 20 states modified their pension plans to help reduce or eliminate unfunded liabilities. States also have made tough budget cuts and, in some cases, raised taxes to keep their budgets balanced, the report states.
“Allowing states to declare bankruptcy is something our members have neither requested, nor would ever consider, to deal with holes in their budgets,” Chris Whatley, director of CSG’s Washington office, said in a statement. “The mere existence of a law like this could have some very detrimental effects for the states, such as raising interest rates and making the market even more volatile. That would only serve to hurt our members as they look to bonds to finance long-term projects.”
“Facts You Should Know” was issued by The Council of State Governments, National Governors Association, National Conference of State Legislatures, National Association of Counties, National League of Cities, The U.S. Conference of Mayors, International City/County Management Association, National Association of State Budget Officers, National Association of State Auditors, Comptrollers and Treasurers, Government Finance Officers Association and the National Association of State Retirement Administrators. Download the entire document.
