Heavily Democratic US States such as California, Illinois, Connecticut, Michigan and New York are anxiously waiting for the Federal Government to bail them out* (with money taken from other states) because they are insolvent. There is another option and I believe that it should be taken up by the new Congress in January 2011. 
Change the law to allow US States that are insolvent to seek protection under US Code Title 11, Chapter 9 (Bankruptcy Code). The law presently provides for reorganizing municipalities** (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts). This law should be expanded to states rather than bailing them out.
They can go bankrupt and put their debts at the feet of a Federal Court that will have to decide which bills will be paid and when they will be paid. It would result in NOBODY doing any business with the bankrupt state because there is no telling when they would be paid. The court could also order them to sell land holdings, etc. to try and satisfy the debts. I am sure that state parks would be exempt, but most states have an inventory of properties and assets they could put on the auction block.
Big Labor will fight this sort of law tooth and nail. And the country needs to decide who is running the states – the voting public or corrupt unions.***  Applying bankruptcy rules to states would force them to get their financial houses in order under the supervision of the courts. There is no other practical way to do it. Allowing the “Chicago Way” to rule America despite the presidency of Chicago-based Barack Hussein Obama, is not sustainable.

According to the Wall Street Journal (speaking of California in particular), “You’ve racked up nearly $70 billion in general obligation debt, and that doesn’t include your $500 billion unfunded pension liability. Your own analysts predict you’ll face a hole of at least $80 billion over the next four years.
“Your government’s run by a brothel of environmentalists, lawyers, public-sector unions and legislative bums. When they’re not taxing or spending, they’re creating regulations and commissions like the Board of Barbering and Cosmetology and the California Blueberry Commission. Many businesses would leave if it weren’t for your sunny climate.”****
*(LINK) Dick Morris’ Blog
**(LINK) “The first municipal bankruptcy legislation was enacted in 1934 during the Great Depression. Pub. L. No. 251, 48 Stat. 798 (1934). Although Congress took care to draft the legislation so as not to interfere with the sovereign powers of the states guaranteed by the Tenth Amendment to the Constitution, the Supreme Court held the 1934 Act unconstitutional as an improper interference with the sovereignty of the states. Ashton v. Cameron County Water Improvement Dist. No. 1, 298 U.S. 513, 532 (1936). Congress enacted a revised Municipal Bankruptcy Act in 1937, Pub. L. No. 302, 50 Stat. 653 (1937), which was upheld by the Supreme Court. United States v. Bekins, 304 U.S. 27, 54 (1938). The law has been amended several times since 1937. In the more than 60 years since Congress established a federal mechanism for the resolution of municipal debts, there have been fewer than 500 municipal bankruptcy petitions filed. Although chapter 9 cases are rare, a filing by a large municipality can— like the 1994 filing by Orange County, California—involve many millions of dollars in municipal debt.”
*** Election Day 2010 demonstrated the enormous power of public employee unions and their integral relevance to the Democratic Party. In state after state, the vote totals of Democratic candidates, particularly those running for Senate, exceeded the predictions of all pollsters. This gap between pre-election anticipation and Election Day results had one main cause: the militancy, money, and manpower of public employee unions. It was the combined efforts of the SEIU (Service Employees International Union), the NEA (National Education Association), the AFT (American Federation of Teachers), and AFSME (American Federation of State and Municipal Employees) that preserved the Democratic control of the U.S. Senate.

**** (LINK) The Wall Street Journal refers to California as the “Lindsay Lohan of States” — that sums it up.

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13 COMMENTS

  1. I'm really under-educated on this topic but I'm convinced that a few well-publicized municipal bankruptcies could go a long way out here. This would be painful: city services shut down, teachers and firemen layed off–absolutely no new hiring.

    This may be the only way to bring all the real parties together.

  2. I led the investigation that surrounded the Orange County Bankruptcy in 1994 so I do know something about the process. Essentially, the doors stay open but the spending is supervised. Firemen and teachers keep their jobs but labor contracts are scrutinized by the court that is acting as conservator of the entity.

  3. The States dominated by the Democratic Party have a spending problem – not a revenue problem. Bankruptcy takes the spending from the slimy hands of the legislature and tries to deal with restructuring and eliminating debt.

  4. California believes it deserves all it can get from all the other states. Movies are made in California. Don't you understand, man? MOVIES!!!!!!

  6. Opus – The entitled vote to keep their entitlements. Once you hit that 51% mark where there are more entitled than those who pay into the system, they vote themselves a sinecure. Forcing the states into bankruptcy rather than bailing them out is a hedge against that.

  7. Dear LL….Wow…5 years ago I raised 250K to start a business/made some mistakes and went bankrupt. Bought my house out of bankruptcy and have had 2 jobs for 5 years to do it. I say pull the plug on this shit and let Cali dig themselves out of debt like I "the little guy" had to do….OH yes and ps …..If I hear we bail out on more Bank I shall blog about it till no end…THERE IS NO END TO ANY OF IT>

  8. How much do they pay you to be a shill for corporate plunder? Can't be all that much can it? Do you work for the pentagon?

    Does being a propaganda-specialist make you feeeeel warm inside?

    Too bad the days of hyper-rich white-guyism will come to an end sooner or later. Slaves always revolt…

  12. It's a nightmare out here, as you know, LL. And instead of cutting spending, the clueless unwashed actually elected a Gov. that ran on a platform of RAISING our state income taxes! God help us.

  13. Thanks for the information..I really like your post..I need some help!
    I've read a bit of things about chapter 7, but one thing isn't clear. Under the new laws, I do qualify for it. I'm in USA. It says I can keep the car up to the value of 3k. My car is work 7k. I obviously cannot afford nor would I qualify to get a new car and I have no money (which is why the bankruptcy). I live alone and can't go without a car. What will happen in this case? I have no other assets other than that.
    file for bankruptcy

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