Due to the Great Recession, many states are cutting off services and firing its employees. The 600 pound guerrilla in the room is the billions of dollars of unfunded pension liabilities extended to the Employee Labor Unions as "back loaded" compensation packages to kick the compensation can down the road. Now the States may have to choose paying the interest to its bond holders or to withhold the pension payments due its large retired population.
The three auto companies were able to solve this conundrum by filing for Chapter 11 of the Bankruptcy Code. Pensions were renegotiated and the bond holders took a "haircut". Several subdivisions of City, County and State government have filed for relief under Chapter 9 of the Bankruptcy Code.
Guess what folks. Our Federal Bankruptcy Code does not provide any Bankruptcy relief under Chapter 9, or any other Chapter of the current Bankruptcy Code
Today, there’s no federal bankruptcy process for the states. Veteran Republican Newt Gingrich wants to change that. But so far, the plan smacks of politics rather than practical policy. The costs would be huge and there’s no guarantee the federal government would be off the hook.
Due to certain provisions of the US Constitution, Congress may not have the power to provide Bankruptcy Relief to States. The States stand in the same line as the foreclosed homeowners since the Bankruptcy Code was amended in 2005 by legislation sponsored by Senator Grassley (the same "Death Panel Grassley") who opposed health care reform.
Now the Republicans who govern the Republican States wish to provide for Bankruptcy Relief for the States. The States are "sick" so let them die per the Governor of Arizona.
The chickens have come home to roost on the door steps of those "heartless" Republicans.
Martin S. Friedlander, Esq.
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