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Go For Broke

There's an interesting discussion going on around the blogosphere, largely prompted by the financial nightmares a couple of states (California and Illinois, and possibly New Jersey) find themselves in. It brings up the of can a state go bankrupt legally? If not, why not? Should they? And how should it happen?

I've only skimmed the articles and comments, but I'm finding myself generally in sympathy with the idea that yes, we should allow it -- but with some hefty restrictions.

The first is, the state must enter into it entirely voluntarily. Private firms can be forced into bankruptcy by creditors; that should never be the case with a state. I'd suggest it must be approved by a supermajority of their legislature (2/3 sounds good) and signed by the governor.

The second idea, culled from the Volokh Conspiracy's comments, is that the state would have to forfeit its status as a state. It would revert to being a territory, directly governed by Congress, like Guam or Puerto Rico or the District of Columbia. The citizens of the ex-state would retain their rights as American citizens, including voting for president, but would forfeit their Congressional representation. They would have to come up with a plan to reorganize as a state (or, in California's case, perhaps two states -- it's certainly big enough to split) and petition for readmission to the union, but only after they've gotten their finances in order.

This could also mess up the design of our flag, but I would say we just ignore that technicality and leave the flag as is.

I'll have to give this idea some more hefty thought, but my gut instinct is pushing me towards favoring the idea of a state bankruptcy coupled with a forfeiture of state status, and a path back to full statehood outlined. It strikes me as an extreme measure, but desperate times call for desperate measures.


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Comments (17)

Welcome to the new state of... (Below threshold)
Rich:

Welcome to the new state of Mexico.

There are states that would... (Below threshold)
Donna:

There are states that would LOVE to secede from the union. So I'm not sure that becoming a 'territory' is a bad thought (or 'punishment'). I'm all for CA not being a state of the union too.

"I'll have to give this ide... (Below threshold)
David Marcoe:

"I'll have to give this idea some more hefty thought, but my gut instinct is pushing me towards favoring the idea of a state bankruptcy coupled with a forfeiture of state status, and a path back to full statehood outlined. It strikes me as an extreme measure, but desperate times call for desperate measures."

To start off, some type of volitional clause would never make it into a law of this type. If things got severe enough that it had to happen, it's going to be coerced. It assumes a state government is going to willingly relinquish power, while also assuming that a majority or just a plurality of a state's populace will somehow accept this measure as well. Not going to happen...

Instead of waving your hand and saying that it would be voluntary, consider what is more likely to happen. In the 1860s Mexico defaulted on debts to France, who under Napoleon III, invaded and occupied Mexico, overthrowing her government and installing a monarch. In light of actual history, you might want to also ask what means would be needed to enforce these measures; civilian law enforcement? The military? Is the federal government going to federalize the state's National Guard contingent? Is a state of martial law going to be needed? Are you prepared to deprive citizens of the state in question of their right to their duly elected officials?

Also, we seem to be forgetting the little detail of the states being co-sovereign entities with the federal government under the Constitution. Outside of sedition or rebellion, are there any constitutional grounds for something like this? If the European Union were to strip Greece or Ireland of sovereignty for their debts--even if it was done voluntarily--I doubt any of us would think that was a good idea.

And Congress would handle this? First, you would be handing to an entity that would have an interest in increasing its own power, expanding its size and of diminishing the power of the states. Second, you handing the federal government an instrument, a potential Damocles sword, that could be turned to the federal government's advantage and deprive the states of the means to resist federal encroachment, given a little modification. Third, what government functions would be interrupted--courts, prisons, state police agencies, etc.--and who would take them over, other than the feds? What government agencies would be expanded or set up to oversee these functions? Congress has been handing its power over to regulatory agencies for a long time, so what's to stop them for doing the same in these cases?

And its one thing to say that that they would forfeit congressional representation, but how would these effect the seating of Senators and House delegations, or subsequent elections (as in, whose managing them, if not state governments)? How would those seats be reapportioned (and don't tell me that various delegations wouldn't be vying for extra seats)? How would you handle joint state-federal programs, like Medicaid? It's a can of worms with no constitutional guide and the mountain of law could make Obamacare look small by comparison.

In short: BAD F***ING IDEA!

Yes, we'd have to redesign ... (Below threshold)
PapaWhisky:

Yes, we'd have to redesign the flag. We'd have to replace their star with a Red Star, because the federal government would now "own" them....

David, as I'm seeing it, it... (Below threshold)

David, as I'm seeing it, it would be like how California is now begging for a federal bailout. Under this, the feds would say "sure, no problem. Here's how you get us to pay your bills."

And it would be a reversion -- most states started out as territories or part of territories, then later were accepted as states. The process is already laid out; it's just a matter of adding in an "undo" or a "reset" button.

We already have structures for governing territories -- Pacific islands and chains, Puerto Rico, and DC all have functioning governments, to some degree (OK, maybe not DC). And, for the most part, they work OK.

I'm not seeing this as a great idea, but a tolerable alternative to the inevitable state bailouts we're going to be asked for in the very near future. They are coming. California will likely be the first, but hardly the last. I want something set up to deal with that before it arises. And degrading a state to "territory" (with the consent of the existing government and Congress -- forgot to mention that) allows us to use existing structures and rules to handle the process. It's the simplest solution I can see.

I don't love it. I don't even like it. But I think it might be needed.

J.

It is a fairly safe bet tha... (Below threshold)

It is a fairly safe bet that whatever system the federal government attempts to put in place to deal with state insolvency, be it some form of bankruptcy or bailout, the end result will be increased federal authority at the expense of what little autonomy the states currently maintain.

Getting the Federal governm... (Below threshold)

Getting the Federal government involved in managing a bankruptcy will only make the situation worse.

My inclination would be to let the majority (or a super majority) of creditors force a state into bankruptcy. We probably do need an amendment to the bankruptcy law that would prohibit the judge of allowing any current elected official from administering the bankruptcy and prohibit the elected officials responsible from ever again holding an office of public trust.

Getting the state bankruptcy out of partisan bailouts, and subject to bankruptcy laws and creditor initiative, with personal penalties for the overspending politicians who shirked their fiduciary responsibilities, might give some of them some incentive to start behaving.

You can't force them to los... (Below threshold)
jim m:

You can't force them to lose their status as a state. But you could pass a rule in Congress stripping the representatives of any such state of all seniority and committee assignments.

You want to see the buzzards circling around Pelosi? Watch how fast her sway on the dem caucus evaporates when the NY delegation gets the idea that they could run the entire CA delegation out of committee leadership.

"David, as I'm seeing it... (Below threshold)
SteveM:

"David, as I'm seeing it, it would be like how California is now begging for a federal bailout. Under this, the feds would say "sure, no problem. Here's how you get us to pay your bills." "

California isn't begging for a federal bailout, making the rest of your fantasy just another right wing wacko whackoff.

At least when Sarah Palin makes up crap it's entertaining....

California isn't begging... (Below threshold)
Jay Guevara:

California isn't begging for a federal bailout

At one juncture, neither was GM. But keep on whistling past the graveyard. Everything's fine. Liberal policies work, it's just the messaging, and the need for more socialism. Then everyone will have a pony.

At least when Sarah Pali... (Below threshold)
Jay Guevara:

At least when Sarah Palin makes up crap it's entertaining....

This would be the Sarah Palin that you Reds never think about? That one?

Wondering what she's doing right now, aren't you? Ha! Caught ya!

CA wouldn't declare bankrup... (Below threshold)
Jay Guevara:

CA wouldn't declare bankruptcy, even if it could, and won't do anything that will constitute bankruptcy in all but name, for one simple reason: the public sector unions, who own the Democrat Party here lock, stock, and barrel, won't allow it.

They know perfectly well that in any type of reorganization their extortionate, parasitical contracts will be the first thing to go over the side. Jerry Brown is a union flunky from way back. So are the Dems infesting the legislature. The unions are their power base, the source of their campaign funds. (Check out OpenSecrets.org re campaign contributions.) Same thing with Congressional representation. Largest contributor to Boxer? California Federation of Teachers.

So no reorganization until the state is burning down because police and fire services aren't being paid for.

Meanwhile, I'm still getting my mind around the idea of the Federal Government taking over a state's finances because the state has proven financially irresponsible. It's kinda like having Lindsay Lohan counseling people on how to straighten out their lives.

I'm not sure the idea of sp... (Below threshold)
david:

I'm not sure the idea of splitting default states in two is a good idea, since the states likely to default are blue states, and splitting a "blue" state in two gives it two more senators.

"It's kinda like having ... (Below threshold)
SteveM:

"It's kinda like having Lindsay Lohan counseling people on how to straighten out their lives."

Now THAT's funny! Not Sarah Palin "I can see Russia from my House" funny, but still funny.

"is that the state would ha... (Below threshold)
retired military:

"is that the state would have to forfeit its status as a state"

Unless I am mistaken, territories like Peurto Rico DO NOT pay federal income taxes.

If that is correct than do this would be a HUGE mistake.

I want you to spend five mi... (Below threshold)
Jay Guevara:

I want you to spend five minutes without thinking about Sarah Palin. Can you do that?

Leftists are totally obsessed by her, for reasons that surpasseth all understanding. Why?

Feral gummint "bailout" of ... (Below threshold)

Feral gummint "bailout" of bankrupt states?

(Foreign and domestic)

Already happened.

Much of 0'Zero's TARP and other "stimulus" squanderings were on the bailings out of several foreign countries and of several states. Including California.




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