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**venediene** · 01-21-2011, 04:58 AM

http://www.nytimes.com/2011/01/21/bu..._r=2&src=busln

Path Is Sought for States to Escape Debt Burdens

By MARY WILLIAMS WALSH

Published: January 20, 2011

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.

Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

01-21-2011, 04:58 AM	#1
venediene Join Date Oct 2005 Posts 433 Senior Member	NY Times: Bankruptcy Option For States Is Quietly Being Studied http://www.nytimes.com/2011/01/21/bu..._r=2&src=busln Path Is Sought for States to Escape Debt Burdens By MARY WILLIAMS WALSH Published: January 20, 2011 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. Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.
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