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Jax Daily Record Friday, Jan. 28, 201112:00 PM EST

Bush, Gingrich: Allow states to declare bankruptcy


From the News Service of

Florida and staff

A Jan. 27 Los Angeles Times opinion-editorial column by former Florida Gov. Jeb Bush and Newt Gingrich, former U.S. House speaker, was headlined “Better off bankrupt, states should have the option of bankruptcy protection to deal with their budget crises.”

Letting states declare bankruptcy would be a fair way to help cash-strapped states and end the practice of having Washington bail out some more debt-prone states, wrote Bush and Gingrich.

“The new Congress has the opportunity to prepare a fair, orderly, predictable and lawful approach to help struggling state governments address their financial challenges without resorting to wasteful bailouts,” they wrote.

“This approach begins with a new chapter in the federal Bankruptcy Code that provides for voluntary bankruptcy by states, a proven option already available to all cities and towns across America.”

Unlike cities and other local governments, such as California’s Orange County, states can’t seek protection in bankruptcy court.

Such a change would also free states from one big financial obligation, contracts negotiated in the past with unions.

“As with municipal bankruptcy, a new bankruptcy law would allow states in default or in danger of default to reorganize their finances free from their union contractual obligations,” wrote Gingrich and Bush, who was often at odds with unions as governor.

“In such a reorganization, a state could propose to terminate some, all or none of its government employee union contracts and establish new compensation rates, work rules, etc. The new law could also allow states an opportunity to reform their bloated, broken and underfunded pension systems for current and future workers,” they wrote.

“The lucrative pay and benefits packages that government employee unions have received from obliging politicians over the years are perhaps the most significant hurdles for many states trying to restore fiscal health.”

The pair likely chose the Los Angeles Times because California is in the worst shape, facing a more than $25 billion shortfall.

Bush served as Florida governor from 1999-2007, then launched the Foundation for Excellence in Education, based in Tallahassee. Bush chairs the foundation.

Bush is scheduled to speak to the NAIOP commercial real estate group in Jacksonville at noon Feb. 17 at the Hyatt Downtown.

Gingrich is the general chair of American Solutions for Winning the Future.

Bush also is considered a potential presidential candidate in 2016. State Sen. John Thrasher told the Daily Record last week that if Bush had “presidential aspirations, it would be 2016, after we see what happens in the next cycle.”

Bush and Gingrich outlined five guidelines in their call for a bankruptcy option for states that “would look very similar to Chapter 9 municipal bankruptcy, with some necessary modifications.” Those guidelines, in summary, are:

• First, as with municipal bankruptcy, it would have to be completely voluntary.

• Second, as with municipal bankruptcy, a new bankruptcy law would allow states in default or in danger of default to reorganize their finances free from their union contractual obligations.

• Third, the new law should allow for the restructuring of a state’s debt and other contractual obligations.

• Fourth, the federal judge reviewing the state’s reorganization plan would have the power only to accept the plan as permissible under the federal bankruptcy law, or reject it as inconsistent.

• Fifth, the new law should provide for triggering mechanisms to initiate the bankruptcy process that respect the sovereignty of the people of a state. A state legislature acting by a majority vote, with the governor, would fit this test.

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