Former Florida Gov. Jeb Bush and former House Speaker Newt Gingrich have a solution for the enormous shortfalls facing many states — bankruptcy. It would take a change in the law to allow states to go “out of business,” but such an option, already available to city and counties, would give voters the leverage they need to choke off what Bush and Gingrich called the “stranglehold” over state budgets held by unions.
“The lucrative pay and benefits packages that government employee unions have received from obliging politicians over the years are perhaps the most significant hurdles for many states trying to restore fiscal health,” say Bush and Gingrich.
“As with municipal bankruptcy, a new bankruptcy law would allow states in default or in danger of default to reorganize their finances free from their union contractual obligations,” they write in the LA Times.
Bush and Gingrich point to the bankruptcy and recovery by Orange County, Calif., in 1994 after a series of poor investment decisions led to a scandal and taxpayers there declined to foot the bill.
“When California refused to bail out Orange County, the county entered bankruptcy and emerged within 18 months. Within three years, the county returned to an investment grade rating, and it repaid 100 percent of the principal of the vast majority of its investors by 2000 without raising taxes,” wrote Bush and Gingrich.
Just allowing state bankruptcy to exist has merit, Bush and Gingrich argue, since it would put the matter squarely before voters and highlight the problem of obliging union deals built up over decades.
“If government employee union bosses know that they could have all their contracts annulled under federal bankruptcy law, either through a plan of reorganization voluntarily entered into by state leaders or by the voters through proposition, they may be far more accommodating with state governments to restructure government employee union work forces, pensions and work rules,” the pair wrote.
California Gov. Jerry Brown has told voters his budget will eliminate the state’s staggering deficit of $25.4 billion through a combination of spending cuts to education, welfare, and the elderly poor, along with tax hikes. The proposed budget met instant opposition from the state’s politicians.
"It's better to take our medicine now and get the state on a balanced footing," Brown told reporters.
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