State Bankruptcy Idea Being Discussed

Senate Republican leaders “said on Tuesday they were considering introducing legislation to allow financially stressed U.S. states to declare bankruptcy, even though the No. 2 Republican in the House of Representatives has rebuffed the idea,” Reuters reports.

"We’re exploring that as a responsible option," Senator John Cornyn, who sits on both the Budget and Finance committees, told reporters.

Some Republicans have embraced the bankruptcy option, which would allow states to sort out finances and renegotiate contracts with public employee unions, as an alternative to sending in federal aid.

Pension obligations to state workers including teachers and law enforcement personnel pose a major burden on many states.

But “analysts — and states themselves — are concerned that opening up a bankruptcy option would spook the buyers of state debt, driving up interest rates and making borrowing more expensive.”

Minority Leader Mitch McConnell (R-KY) “said no decision had been reached on whether to introduce legislation that would open bankruptcy courts to states beset by financial troubles from the 2007-2009 recession.”

But he closed off the option of Congress sending states large sums of money, as it did in 2009 as part of the $814 billion stimulus plan championed by President Barack Obama.

Republicans rode a wave of public discontent over bailouts and burgeoning federal debt in November elections that handed them control of the House and more seats in the Senate.

"There will be no bailouts, I can tell you that. No bailouts," McConnell said.

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