 It's an idea that's been floating around Washington, D.C., lately as
more states find themselves in financial holes.In several reports
by national media, Illinois has been used as an example of a state
that could use a bankruptcy option because of its
billions-of-dollars deficit.
But there are constitutional hurdles that would be hard to
overcome, according to Douglas Baird, a law professor at the
University of Illinois at Chicago.
"A state may contract debt but, typically speaking, you can't go
to an Illinois court and sue the state of Illinois to collect the
debt and you can't go to federal court to sue a state and collect
the debt, because states have what's called sovereign immunity,"
Baird said.
Bankruptcy affords individuals and businesses a way to get out
from under the debt they owe and, in some cases, reorganize that
debt to remain in business. States don't need that option because of
sovereign immunity, Baird said.
"If you're immune from suit, then you don't need bankruptcy,
because your creditors can jump up and down but they're not going to
be able to do anything because they can't seize your assets or do
stuff like that anyway," he said.
This immunity makes bankruptcy for states unnecessary, according
to opponents of the plan.
At least one constitutional officer in Illinois has come out
against any bankruptcy plan for states.
Republican Comptroller Dan Rutherford, speaking on CNBC Tuesday
morning, said that states need to deal with their fiscal issues
through channels already available. States can either raise taxes,
like Illinois did recently when it increased its personal and
corporate income tax rates, default, or make major cuts, Rutherford
said on the broadcast. He said states facing fiscal problems must
use some combination of the options available to fix the problems.
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Democratic Gov. Pat Quinn's budget point man David Vaught agreed,
saying letting states go bankrupt is a "very, very bad idea."
"States don't go bankrupt. There's no Chapter 9 in the current
bankruptcy law (for states)," Vaught said, referring to the federal
bankruptcy code that allows municipalities to reorganize debt with
creditors.
"States are sovereign states. They have unlimited taxing power.
They have the ability to solve their own problems, and we don't need
this debate in Washington," he said.
The idea of giving states bankruptcy as an avenue to deal with
mounting deficits garnered attention after being mentioned by former
Republican House Speaker Newt Gingrich. Many are concerned
Gingrich's plan would allow Illinois and others to change pension
benefits and other services promised by the states.
Bankruptcy is "essentially creating an avenue for states to walk
away from their obligations to provide public services, to pay their
bills and to meet their commitments to their employees. That's a
dangerous recipe," said Anders Lindall, a spokesman for the American
Federation of State, County and Municipal Employees Council 31.
Prominent political leaders on both sides of the aisle have since
come out against the plan. It seems to be losing steam, and specific
legislation has yet to be introduced in Congress.
[Illinois
Statehouse News; By ANDREW THOMASON]
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