In many states, bankruptcy will be an option only if powerful unions and other entrenched interest groups see it as a way to force budget problems onto the state’s bondholders rather than public employees. Bankruptcy in these conditions would allow the state to continue budgeting under the same structure as before, basically giving statehouses a clean slate without providing incentives to change the core of their financial problems: overspending in education, excessive public pensions and benefits, and a swollen state work force. You wouldn’t want to pay down your sister’s credit card balance without taking away her ability to pile up new debt.
That’s Veronique de Rugy, writing on state bankruptcy in the latest issue of Reason Magazine. It is an excellent accounting of the arguments, pro and con. Read the whole piece.
Veronique deRugy has a column in the upcoming edition of Reason Magazine discussing the idea of allowing states to declare bankrtupcy. It’s good to remember that bankruptcy doesn’t mean that states suddenly have an incentive to re-think and re-structure their budgets. It only means they get a chance to start over with a clean slate. Another question to consider is this: why can’t states straighten out their fiscal problems now? Do they lack the tools? In reality there are things states can do, but it must be in conjuction with federal spending reform. In short, there are no easy solutions to decades of structural budgetary problems.
New York’s highest court recently decided two separate cases that centered around eminent domain abuse and the Fifth Amendment. In late November, the court allowed basketball tycoon Bruce Ratner to appropriate a good sized section of a Brooklyn, furthering his plan to move the New Jersey Nets franchise to a new arena. Last week, the intermediate appeals court stopped Columbia University’s attempt to gobble up much of the Manhattanville neighborhood north of Midtown. [Corrected 12/08.]
These cases highlight just how much of a mess eminent domain proceedings are in the wake of 2005’s U.S. Supreme Court decision Kelo v. City of New London. Supreme Court decisions are no stranger to controversy, but the outrage surrounding Kelotranscended party or ideology, and led to forty-three states adopting restrictions on their own eminent domain powers.
In the Brooklyn case, the issue is identical to Kelo. Bruce Ratner wants to tear down a significant portion of a vibrant neighborhood, and replace it with private economic developments including office towers, a shopping complex, and a basketball arena, which will likely be financed with a significant public subsidy.