States Prepare to Go Belly Up

Week-kneed state level politicians have pandered for public employees votes for years. The legacy of this pandering is crushing debt due partly to bloated pension obligations. The only way out may be bankruptcy. Illinois and California are the leading contenders.

(NYT)- Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.
But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.