The Global Report

Officials working quietly to allow states to go bankrupt

Added under Labor

Washington policymakers are seeking to make it easier for states to declare bankruptcy and escape the burdensome debt that they labor under, often exacerbated by generous pensions paid out to retired public employees.

According to a report in the New York Times, any measures to allow states to file for bankruptcy would have to clear "high constitutional hurdles because the states are considered sovereign."

Unlike cities, states are prohibited from bankruptcy protection.

Supporters of the move point out that some states are facing such monumental debt–including populous California, Illinois, Texas and New York–that the luxury of bankruptcy might be their only way out of their problems.

Bankruptcy would allow states to change their contractual promises to retired workers and could provide alternatives to a bailout. Of course, passage of such a move would hurt not only the retirees themselves but also state bond investors.

Sources: International Business Times

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