The New York Times is reporting that some people in Congress are looking at ways to facilitate states declaring bankruptcy.
My two biggest concerns are reflected in one paragraph:
Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.
So, here are the two alarming aspects of this move:
- Once you start talking about ditching your financial obligations, everything you do becomes more expensive. States embracing a right to walk away from financial obligations is going to drive up their costs of bonds, etc. It’s bad business. Bankruptcy is already too common in the private sector. Why should private citizens avoid bankruptcy once state governments start to embrace this escape?
- It’s not fair to take out the state’s fiscal problems on retirees. I agree that states have often been too generous in the retirement packages they’ve offered. However, the states need to honor their promises–especially to those people least able to take care of themselves.
Cut my salary, the governor’s, everyone in the state before taking money out of the hands of people who have no choices. If you cut my salary (there is talk of cutting every the salary of state employee by 10%) I can quit, seek a “promotion” (administrative positions in universities pay higher but I don’t consider them higher positions), or make some kind of change. Retirees don’t have choices. They can’t go back to work. They can’t go back and change the employer they trusted to honor commitments.
Certainly, there are some former state employees living the good life in retirement. However, many are not. Their payments from the state may seem high but so are their expenses. Getting old is not cheap when you need extensive nursing care, medical procedures and/or medication.
I understand that many politicians do not want to break pledges like “no new taxes” or “no pay cuts.” Campaign promises are important. However, elected officials have to consider honoring the commitment that they and their predecessors made every day of every year as employees labored under agreements that they honored for decades. Those state employees taught our children, protected us from crime, and labored on our behalf under commitments that our government pledged to honor. Saying that “things have changed” is too easy.
The campaign pledges made in the heat of the campaign may be fresh and make good politics. However, the easiest and most convenient answer is not always the right answer.
Filed under: Fiscal Policy |