So it's entirely possible that some state government -- California and Illinois, facing $25 billion and $15 billion deficits, are likely suspects -- will be coming to Washington some time in the next two years in search of a bailout. The Obama administration may be sympathetic. It's channeled stimulus money to states and TARP money to General Motors and Chrysler in large part to bail out its labor union allies.
But the Republican House is not likely to share that view, and it's hard to see how tapped-out state governments can get 60 votes in a 53-47 Democratic Senate.
How to avoid this scenario? University of Pennsylvania law professor David Skeel, writing in The Weekly Standard, suggests that Congress pass a law allowing states to go bankrupt.
Skeel, a bankruptcy expert, notes that a Depression-era statute allows local governments to go into bankruptcy. Some have done so: Orange County, Calif., in 1994, Vallejo, Calif., in 2008. Others -- perhaps a dozen small municipalities in Michigan -- are headed that way.
A state bankruptcy law would not let creditors thrust a state into bankruptcy -- that would violate state sovereignty. But it would allow a state government going into bankruptcy to force a "cram down," imposing a haircut on bondholders, and to rewrite its union contracts.
The threat of bankruptcy would put a powerful weapon in the hands of governors and legislatures: They can tell their unions that they have to accept cuts now or face a much more dire fate in bankruptcy court.
It's not clear that governors like California's Jerry Brown, who first authorized public employee unions in the 1970s, or Illinois's Pat Quinn will be eager to use such a threat against unions, which have been the Democratic Party's longtime allies and financiers.
But the bond market could force their hand and seems already to be pushing in that direction. And, as Bowles notes, when the markets come, they will be swift and severe.
The policy arguments for a bailout of California or Illinois public employee union members are incredibly weak. If Congress allows state bankruptcies, it might prevent a crisis that is plainly looming.
Michael Barone, senior political analyst for The Washington Examiner (www.washingtonexaminer.com), is a resident fellow at the American Enterprise Institute, a Fox News Channel contributor and a co-author of The Almanac of American Politics. To find out more about Michael Barone, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.
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