Will we see legislation to allow states to file for bankruptcy?
It’s possible. Right now, bankruptcy is a federal responsibility. Nothing in the bankruptcy code says a state can go bankrupt.
How might states change budgeting strategies?
There’s political support for a tough new stance by states. People are saying, ‘I can’t retire at 55 with 90% pension. Why can a DMV clerk do that?’
What states may be near financial collapse?
Illinois is in deep trouble. California certainly is. NY isn’t far behind. Those are the three biggest states in the union.
What are the risks involved?
It would have a devastating impact on muni bonds. The states’ credit rating would be impacted; they wouldn’t be able to borrow again for a long time.
Why, then, does bankruptcy appeal to some?
It would allow states to get out from under unsustainable contracts with public service employees—pensions, pay, all kinds of things.