Governors Rip Congress’ State Bankruptcy Talk

By Sean Cavanagh — February 28, 2011 1 min read
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A number of governors who came to Washington for a winter policy meeting made a point of blasting the idea that the U.S. Congress would let states declare bankruptcy, a move that might allow for the negation of costly pension contracts for teachers.

In fact, the governors seemed to wish everybody would quit talking about the idea altogether.

Washington Gov. Christine Gregoire and Connecticut Gov. Dannel Malloy, speaking at the opening of the National Governors Association’s winter conference, told reporters that talk of such a move, which has buzzed around the nation’s capital in recent months, would roil financial markets and make it more difficult for states to borrow money for important projects. The governors also suggested it could imperil states’ financial recovery from the recession.

“Not only do we not want it, we want to stop the discussion,” Gregoire said. “We’d like the leaders of Congress to say, ‘It’s dead.’”

Added Malloy: “This is some of the most dangerous discussion that we’ve had in political terms in a long time. You’re threatening the entire municipal [bond] market.”

Many state officials, particularly Republicans, have voiced concerns about their states’ high pension costs for teachers and other public employees, saying their states can’t afford them. (Wisconsin Gov. Scott Walker, whose proposal to change benefits and collective bargaining for teachers and other public workers has caused a furor, is one such state leader.) Pension contracts are difficult, if not impossible to break, legally, and so some members of Congress apparently believe letting a state declare bankruptcy would create a way around that barrier. (See a post I wrote a while ago for background.)

Malloy called the bankruptcy idea “the height of insanity.”

He and Gregoire are both Democrats, but opposition appears to be bipartisan. Republican Gov. Gary Herbert of Utah also spoke out against the idea at the meeting. In fact, NGA and the National Conference of State Legislatures recently sent a letter to Congress opposing the bankruptcy option.

Malloy and other governors suggested that if states want to lower pension costs, they need go through the political process—presumably going through the legislature and negotiating with unions.

A version of this news article first appeared in the State EdWatch blog.