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Old 04-22-2020, 07:10 PM
Dewey Finn is offline
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"McConnell thinks bankruptcy, not more federal money, might be best for state and local governments"


This story from CNN talks about a radio interview Mitch McConnell had with Hugh Hewitt today. (The thread title was the headline on the CNN story.) McConnell said, "I would certainly be in favor of allowing states to use the bankruptcy route. It saves some cities. And there's no good reason for it not to be available. My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them now so they don't have to do that. That's not something I'm going to be in favor of." (Some have suggested that the current round of pandemic-related spending should include money for states and cities that have spent a lot as a result.)

I'll be honest; the idea of a whole state declaring bankruptcy seems crazy to me. Googling, I learn that some actually did this, although it was 180 years ago. Are some state finances so bad that this is a possibility? If so, which states or cities are in the worst shape? (McConnell's comments seem to suggest that he thinks it's Democratic states.)

At the same time, I'm a little amazed that the federal government (with a Republican in the White House and Republicans firmly in control in the Senate) signed off on at least $2.5 trillion in pandemic-related spending.
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Old 04-22-2020, 07:33 PM
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The fact that Hugh Hewitt is president and CEO of the Richard M. Nixon Foundation tells you everything you need to know about him.

McConnell wants states to go into bankruptcy because despite the supposed conservative principles of “states’ rights” he wants states beholden to Congress. By getting more control over the states a Republican-controlled Congress can entrench their positions on various issues from abortion rights and birth control to religious charter schools and gerrymandering. He’s not shy about his motives, either. However, the states most likely to have to declare bankruptcy or other measures are going to be the ones already hurting from loss of industries and damage to the agricultural sector from Trump’s immigration policies and “trade war“ with China, which BTW we still haven’t won despite his promise that “Trade wars are easy to win.”

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Old 04-22-2020, 08:10 PM
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My impression is that McConnell was mainly talking about states with underfunded pension systems; he doesn't want federal relief money used to shore up pensions. I'm guessing that if there's another relief bill intended to address state budget shortfalls, it won't include any money for pension debt.

The idea that allowing states to declare bankruptcy will magically make pension debt go away strikes me as fanciful. I don't know about other states, but Illinois has a clause in the state constitution that prohibits the state from reducing pensions. The state legislature has tried to get around this with creative (i.e., stupid) legal arguments, only to get blocked every time by the state Supreme Court. States already have broad powers to raise revenue via taxes, which militates against them saying "Sorry, we're broke and there's nothing we can do about it."
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Old 04-22-2020, 08:10 PM
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What leverage does the federal government gain over a state government if they go bankrupt? In Michigan I believe the state took control of several local governments due to financial issues, I'm not sure what the federal government legally can do.

Can they take over state governments and demand they make cuts to education, health care, infrastructure, etc? What about non-economic issues like abortion, charter schools, drug decriminalization, etc can they enforce non-economic issues in a bankrupt state?

Certain issues like drug decriminalization raise tax revenue rather than cost it. Legal marijuana raises taxes and it saves tax money via less spending on law enforcement and prisons. Is there a constitutional argument for the federal government doing something like overruling legal marijuana in a bankrupt state?
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Old 04-23-2020, 02:46 AM
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Questions on State Bankruptcy
Quote:
Why can’t states use the federal bankruptcy system to reorganize their debt?
“There are two reasons why state governments currently cannot use the federal bankruptcy system to reorganize their debt. First, the federal bankruptcy code does not allow—and has never allowed—state governments to declare bankruptcy. Since 1937, the bankruptcy code has allowed ‘municipalities’ to declare bankruptcy. The term ‘municipality’ is defined in the bankruptcy code as a ‘political subdivision or public agency or instrumentality of a state.’ This definition is broad enough to include cities, counties, townships, school districts and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users rather than by general taxes, such as bridge authorities, highway authorities and gas authorities. But it does not include state governments.

“The second reason stems from the U.S. Constitution. The contracts clause of the U.S. Constitution prohibits state governments from ‘impairing the obligation of contracts.’ As originally understood and enforced, this clause prohibited state legislatures from passing any laws to relieve either private debt or the state government's own debt. Beginning in 1934, however, the Supreme Court began to interpret the contracts clause more flexibly and not as an absolute bar to state debt relief laws. Even under the flexible modern approach, however, the Supreme Court in 1977 reiterated that ‘a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money (on something else.)’ Thus, were Congress to amend the federal bankruptcy code to authorize states to repudiate debt, the Supreme Court would then need to decide the novel constitutional question of whether such debt repudiation would nonetheless violate the contracts clause of Article I, Section 10.”
With enough packed courts, a little unconstitutional action can be accommodated.
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Bid to Let States Go Bankrupt Met Rapid Demise a Decade Ago
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The last time America’s states were in the throes of a crippling fiscal crisis, an idea was floated in Washington to help them swiftly bring it to an end: let them file for bankruptcy and escape from the trillions of dollars owed to bondholders and retired public employees.

It was immediately condemned by Wall Street investors, public employee unions and Republican and Democratic governors, who said it was unnecessary and would saddle them with rising interest rates by spooking the bond market. The discussion was dropped after a single hearing in the U.S. House of Representatives.
Try, try again. Spooked bond market? WHAT bond market? Where are bonds now?
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Old 04-23-2020, 03:36 AM
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Try, try again. Spooked bond market? WHAT bond market? Where are bonds now?
The bond market is, IMHO, the primary reason state bankruptcy won't get to square one. Who in their right mind would buy state bonds knowing that the state could just say, "We're bankrupt! BOOM! Suck it, bondholders!" States might be willing to screw over their retirees, but they don't want to see their bond ratings tank.

Illinois didn't pay its bills for two years because of a political tiff. The thing that finally scared them into action? Moody's was threatening to lower the state's rating to "junk."

McConnell hasn't thought through any of the issues raised in this thread. He's talking out of his ass.
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Old 04-23-2020, 04:06 AM
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Oddly, he did not like bankruptcy for Puerto Rico, who begged for it.
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Old 04-23-2020, 03:22 PM
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It's union busting.
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Old 04-23-2020, 03:39 PM
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Andrew Cuomo pointed out that Mitch McConnell's state of Kentucky is one that takes more in federal funds than it contributes in tax revenues, while NYS contributes more than it takes. And this statement by McConnell, "My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them now so they don't have to do that," would play better if the federal budget was actually balanced, and not an endless series of deficits. Because it sounds like he's saying, it's OK for the feds to overspend, but we're not going to help the states.
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Old 04-23-2020, 03:49 PM
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Bankruptcies mean the little guys owed money get screwed over. McConnell doesn't want his rich masters to pay some of the bill through higher taxes if the government bails out the localities. I can understand why he made that choice since he's previously opted for moral bankruptcy for himself.
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Old 04-23-2020, 04:38 PM
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Maybe bankruptcy would be best for some airlines as well.
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Old 04-23-2020, 05:23 PM
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Originally Posted by RioRico View Post
Questions on State Bankruptcy

With enough packed courts, a little unconstitutional action can be accommodated.
__

Bid to Let States Go Bankrupt Met Rapid Demise a Decade Ago

Try, try again. Spooked bond market? WHAT bond market? Where are bonds now?
Regardless of the merits of this position, it would not be a state law impairing the obligation of contracts, it would be a federal law permitting states to get out of their contracts through a federal procedure overseen by a federal bankruptcy trustee and judge, no different than when an individual declares bankruptcy.

One wouldn't say that an individual has passed his own personal law impairing his own contracts, so why would the states be accused of doing so?

Although it does call into question some basic bankruptcy principles. I can say I can't pay my bills because I can only get a job at Subway making minimum wage. The states have a near unlimited power to raise money and this would put federal judges and trustees in the position of attempting to order states to raise taxes or cut spending: something wholly undemocratic.
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Old 04-23-2020, 07:20 PM
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Although it does call into question some basic bankruptcy principles. I can say I can't pay my bills because I can only get a job at Subway making minimum wage. The states have a near unlimited power to raise money and this would put federal judges and trustees in the position of attempting to order states to raise taxes or cut spending: something wholly undemocratic.
Which ISTM is part of the matter: the states are constitutionally sovereign. They are not wards or creatures of the Federal Government.

In the case of non-sovereign federal subjects, DC and Puerto Rico got one form or another of Fiscal Oversight Board put on top of them to force the District/Commonwealth government to bite the bullet and do the reforms and restructuring without it being a bankruptcy discharge. Our Fical Oversight Board CAN rewrite the state budget; the Judge for the restructuring cases CAN sign off on a settlement that commits to raising taxes or user fees, sell state assets or to cut social services and benefits. Find me a state who'd take that sitting down.

Title IX allows for the bankruptcy of a chartered entity created by the state's laws (a municipality, a transit authority, a college) and in the worst case scenario the state that chartered it can dissolve it and take over what's left after it's sold for parts. Who can dissolve and take over a state?


Which brings me to
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Originally Posted by Paul in Qatar View Post
Oddly, he did not like bankruptcy for Puerto Rico, who begged for it.
Heck, part of the problem was we don't even have Title IX for sub-entities (we were excluded in 1984, nobody has ever provided a good explanation), we would have settled for just that back in 2012. But yes, in our case, making sure there would be no possible "contagion" for the states was very, very pointendly and deliberately brought up as an absolute requirement in passing the PROMESA law in 2016. The debate was essentially several days of reiterating "this is not a bailout, the US Taxpayer/Federal Reserve is not going to assume one dollar of this, bondholders will be paid". Because they knew the congressmen and senators of every state with a failing pension fund would be lining right outside the door otherwise.

Last edited by JRDelirious; 04-23-2020 at 07:24 PM.
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Old 04-23-2020, 07:55 PM
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Maybe bankruptcy would be best for some airlines as well.
It's simple! State governments should be run like businesses, and should be allowed to fail if they don't plan for circumstances like these. But we need to open our national wallet to big businesses because they can't be allowed to fail.
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Old 04-23-2020, 08:52 PM
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Plus: corporate people > actual people.
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Old 04-23-2020, 09:10 PM
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It's union busting.
Yep, I'd go with this ^

And it's an attempt to reduce government staffs and reduce federal spending that goes through the states (Medicaid, Unemployment, etc). It's probably McConnell's attempt to throw pension systems into a mass grave, too.
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Old 04-23-2020, 09:22 PM
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Which, frankly, I do not get at all.

Pensions are one of the top investing groups in the country. Without pensions, the market would drop significantly. Bonds, too, would have to become more expensive to offer - higher interest rates, more fees - without pension buyers.
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Old 04-24-2020, 09:19 AM
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Which, frankly, I do not get at all.

Pensions are one of the top investing groups in the country. Without pensions, the market would drop significantly. Bonds, too, would have to become more expensive to offer - higher interest rates, more fees - without pension buyers.
Pension funds would be fine as long as they never had to pay out any money to (ewww...) ordinary schmucks who worked for a living and expect to go on living after their working days are over. A fund that money goes into is a good thing. As long as money never goes out. Get the picture?
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Old 04-24-2020, 10:30 AM
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Which, frankly, I do not get at all.

Pensions are one of the top investing groups in the country. Without pensions, the market would drop significantly.
But pension funds are annoying investors. They bring enough capital to the table in one big lump so they can make demands on the businesses they invest in -- like oust underperforming management.

Large enterprises would prefer the same investment, but split into 100000 401ks where no individual investor can do anything but invest and hope.
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Old 04-24-2020, 10:31 AM
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It's just culture war nonsense. It's why McConnell is also making comments about not bailing out the pension systems of "blue states." He's hoping to make it look like attempts to shore up state finances are helping out those people at the expense of us. It doesn't look like it's working, at least not yet.
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Old 04-24-2020, 11:44 AM
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Cities and counties have gone bankrupt. I don't think any state has.
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Old 04-24-2020, 11:47 AM
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The problem is that with businesses closed, people unemployed, tax revenues are way down, while expenses are way up and the constitutions of most states forbid deficits. Something's gotta give. When I was living in IL I had the impression that the state's contribution to the pension was entirely unfunded. In fact, even when a federally funded research grant provided funds to cover the state's purported contribution to the pension fund, that money went simply into the state's treasury. And when I left, taking my contribution with me, that federal money simply disappeared.
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Old 04-24-2020, 11:47 AM
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Cities and counties have gone bankrupt. I don't think any state has.
Legally they can't.
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Old 04-24-2020, 01:31 PM
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When I was living in IL I had the impression that the state's contribution to the pension was entirely unfunded.
It is not entirely unfunded, but there have been many years in which the state deferred (i.e., blew off) its required annual contribution.
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Old 04-25-2020, 09:07 AM
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Why Mitch McConnell Wants States to Go Bankrupt
The Senate majority leader is prioritizing the Republican Party rather than the American people during this crisis.


Quote:
...
To understand why Republicans want state bankruptcy, it’s necessary to understand what bankruptcy is—and what it is not.

A bankruptcy is not a default. States have defaulted on their debts before; that is not new. Arkansas defaulted in the depression year of 1933. Eight states defaulted on canal and railway debt within a single year, 1841. The Fourteenth Amendment required former Confederate states to repudiate their Civil War debts.

A default is a sovereign act. A defaulting sovereign can decide for itself which—if any—debts to pay in full, which to repay in part, which debts to not pay at all.

Bankruptcy, by contrast, is a legal process in which a judge decides which debts will be paid, in what order, and in what amount. Under the Constitution, bankruptcy is a power entirely reserved to the federal government. An American bankruptcy is overseen in federal court, by a federal judge, according to federal law.

Understand that, and you begin to understand the appeal of state bankruptcy to Republican legislators in the post-2010 era.

Since 2010, American fiscal federalism has been defined by three overwhelming facts.

First, the country’s wealthiest and most productive states are overwhelmingly blue. Of the 15 states least reliant on federal transfers, 11 are led by Democratic governors. Of the 15 states most reliant on federal transfers, 11 have Republican governors.

Second, Congress is dominated by Republicans. Republicans controlled the House for eight of the last 10 years; the Senate for six. Because of the Republican hold on the Senate, the federal judiciary has likewise shifted in conservative and Republican directions.

A state bankruptcy process would thus enable a Republican Party based in the poorer states to use its federal ascendancy to impose its priorities upon the budgets of the richer states.
...
It's tied to the Republicans' (pretty successful) drive to dominate the federal judiciary. Bankruptcy of states would be overseen by federal courts. That's his strategy in a nutshell-- on the surface.

But wait! That's not all. There is even more underhandedness at work.
Quote:
...Republican plans for state bankruptcy sedulously* protect state taxpayers. The Bush-Gingrich op-ed of 2011 was explicit on this point. A federal law of state bankruptcy “must explicitly forbid any federal judge from mandating a tax hike,” they wrote. You might wonder: Why? If a Republican Senate majority leader from Kentucky is willing to squeeze Illinois state pensioners, why would he care about shielding Illinois state taxpayers? The answer is found in the third of the three facts of American fiscal federalism:
United States senators from smaller, poorer red states do not only represent their states. Often, they do not even primarily represent their states. They represent, more often, the richest people in bigger, richer blue States who find it more economical to invest in less expensive small-state races. The biggest contributor to Mitch McConnell’s 2020 campaign and leadership committee is a PAC headquartered in Englewood, New Jersey. The second is a conduit for funds from real-estate investors. The third is the tobacco company Altria. The fourth is the parcel delivery service UPS. The fifth is the Eli Lilly pharmaceutical corporation. The sixth is the home health-care company, LHC Group. The seventh is the Blackstone hedge fund. And so on and on.
A federal bankruptcy process for state finances could thus enable wealthy individuals and interest groups in rich states to leverage their clout in the anti-majoritarian federal system to reverse political defeats in the more majoritarian political systems of big, rich states like California, New York, and Illinois.
....
Everything Unca Mitch proposes is to benefit wealthy Republican individuals. No wonder they lurve him.




* sedulously --> diligently, persistently (I didn't know this word.)
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Old 04-25-2020, 09:49 AM
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Thank you for that. Which states are most likely to have to consider bankruptcy? Are they the wealthiest and most productive states, mostly led by Democratic governors? Or are they the poorest, least productive states, mostly led by Republican governors?
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Old 04-25-2020, 10:02 AM
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Thank you for that. Which states are most likely to have to consider bankruptcy? Are they the wealthiest and most productive states, mostly led by Democratic governors? Or are they the poorest, least productive states, mostly led by Republican governors?
Thanks for reading it.

I don't know which states... that will require some creative googling. If you search for the topic, articles from 2010-2011 come up from the last time the Pubs were talking about this. Constrain the search to the past year and see what you get. I'm off to take the clothes out of the dryer.

Here's the punch line of the article:
Quote:
...
Difficult and important as these problems are, they are not urgent problems. They existed 24 months ago; they will remain 24 months from now. From a strictly economic point of view, McConnell's schemes for state bankruptcy are utterly irrelevant to the present crisis. Reducing future pension liabilities will not replenish lost revenues or reduce suddenly crushing social-welfare burdens.

But McConnell seems to be following the rule “Never let a good crisis go to waste.” He’s realist enough to recognize that the pandemic probably means the end not only of the Trump presidency, but of his own majority leadership. He’s got until January to refashion the federal government in ways that will constrain his successors. That’s what the state-bankruptcy plan is all about.

McConnell gets it. Now you do, too.
This is why I don't hate trump, but I absolutely hate McConnell.
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Old 04-25-2020, 10:20 AM
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I've heard a theory that McConnell knows demographics will make life very hard for the GOP in decades ahead. So that is why he prioritizes stacking the supreme court and appellate court.

Even if we get a progressive movement in the 2040s, the courts may just overturn a lot of the laws passed. We may get UHC, wealth tax, subsidized daycare, voting rights act, etc passed but the GOP judges may just invalidate them while giving the green light to right wing legislation.

Which is why even if you don't support Biden, its better to vote for him anyway since Biden won't appoint far right judges who sit on the bench for 30-50 years.
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Old 04-25-2020, 12:31 PM
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Frum's article is interesting, but I don't see how McConnell could possibly ram through a state bankruptcy bill this year. Even if he got something passed in the Senate, which seems doubtful to me, it would certainly die in the House.
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Old 04-25-2020, 12:53 PM
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Doesn't the Contracts Clause of the US Constitution ("No State shall . . . pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts") mean that state bankruptcy would require a constitutional amendment?
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Old 04-25-2020, 01:35 PM
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Frum's article is interesting, but I don't see how McConnell could possibly ram through a state bankruptcy bill this year. Even if he got something passed in the Senate, which seems doubtful to me, it would certainly die in the House.
No, this House won't go for it. How about a presidential executive order? Then let our stacked courts worry about it in a few years, after the fait accompli is solid and the federal hostile takeover of blue states is history. Deploy troops to reluctant capitals to maintain order. Detain dissident governors and legislators. Maintain the peace. Right.
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Old 04-25-2020, 01:35 PM
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Doesn't the Contracts Clause of the US Constitution ("No State shall . . . pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts") mean that state bankruptcy would require a constitutional amendment?
That's a good question; I think it would. The argument against that (see UltraVires's post above) is that it would be the federal bankruptcy court cancelling the contracts, not the state, but to me that's a meaningless distinction. The state would still be initiating the process by declaring bankruptcy, and presumably the state legislature would have to pass a bill doing that. I know that the Illinois state constitution also has a contract protection clause, and I suspect other states do too. If McConnell managed to pass a bill allowing state bankruptcies, you'd likely have multiple states challenging the law in the courts and the SCOTUS would have to resolve these questions.

Allowing state bankruptcy would be enormous and hugely controversial, and it baffles me that McConnell is talking about it so casually. It reminds me of George W. Bush's breezy talk about privatizing Social Security.
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Old 04-25-2020, 09:57 PM
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If state bankruptcy is unconstitutional due to the contract clause, then so is municipal bankruptcy which has been allowed for over 80 years. From the point of view of the US Constitution, there's no such thing as a municipal government, it's a mere limb of the state itself. Allowing the "City of Detroit" to declare bankruptcy is the same as allowing Michigan to declare bankruptcy, because Detroit is (from the federal perspective) just an agency set up by the state of Michigan for its own internal conveniences, no different from the Michigan Department of Transportation or the Michigan State Police.

Last edited by Lord Feldon; 04-25-2020 at 10:01 PM.
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Old 04-25-2020, 10:41 PM
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The distinction the existing law makes is between a direct agency of a State Branch of Government like the Department of Transportation or the State Police or the Office of Courts Administration, and chartered entities with their own corporate legal personality, like an incorporated city or the Ports Authority, that has the capacity to issue its own bonds separate from the state general obligation debt.
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Old 04-26-2020, 12:34 AM
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If state bankruptcy is unconstitutional due to the contract clause, then so is municipal bankruptcy which has been allowed for over 80 years. From the point of view of the US Constitution, there's no such thing as a municipal government, it's a mere limb of the state itself. Allowing the "City of Detroit" to declare bankruptcy is the same as allowing Michigan to declare bankruptcy, because Detroit is (from the federal perspective) just an agency set up by the state of Michigan for its own internal conveniences, no different from the Michigan Department of Transportation or the Michigan State Police.
See my post #5 upthread. Especially note this part, quoting "Kenneth Katkin, a law professor at the Salmon P. Chase College of Law at Northern Kentucky University":
Quote:
...the federal bankruptcy code does not allow—and has never allowed—state governments to declare bankruptcy. Since 1937, the bankruptcy code has allowed ‘municipalities’ to declare bankruptcy. The term ‘municipality’ is defined in the bankruptcy code as a ‘political subdivision or public agency or instrumentality of a state.’ This definition is broad enough to include cities, counties, townships, school districts and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users rather than by general taxes, such as bridge authorities, highway authorities and gas authorities. But it does not include state governments.
As noted, a McConnell-instigated revision of federal bankruptcy code is most unlikely to be passed by this House unless the Dems are confined in protective custody.
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Old 04-29-2020, 06:28 AM
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I like how boldly and bluntly it's stated here. In case anyone thinks Mitch's intention is not to punish blue states. My emphasis.
Quote:
Forty states in this country receive more money from the federal government than their residents pay out in federal taxes. Let’s think of those as Taker States.

The other 10 states pay more to the federal government than they receive. We’ll call them Donor States.

Eight of those 10 Donor States, including the top six donors, voted Democratic in the 2016 presidential election.

This is relevant only because U.S. Sen. Mitch McConnell recently badmouthed the idea of the federal government helping pull states out of the fiscal gutter that the COVID-19 pandemic (and the accompanying economic shutdown) has caused.
....
Source
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Old 04-29-2020, 12:06 PM
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In Michigan inability to reduce pensions is in the bloody state Constitution, because they knew back in the early '60s that a day like this would come when the vultures would be circling about that money. Please be reminded that pensions, public or private, are not a cost to the employer. They are paid for by the employee over the course of their working lifetime. As a retired public employee, I can only apologize to leader McConnell that not enough of us have died quickly enough to please him. (Or I can tell him to lick a doorknob.)
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