When states go broke: the origins, context, and solutions for the American states in fiscal crisis

Cover\r......Page 1
WHEN STATES GO BROKE......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Figures......Page 9
Tables......Page 11
Contributors......Page 13
Acknowledgments......Page 15
\rIntroduction: The Perennial Crisis for the American States......Page 17
PART I: The Origins of the States in Fiscal Crisis......Page 23
I: TAXING, SPENDING, AND BORROWING......Page 25
II. THE STATE GOVERNMENT FISC IN AMERICAN HISTORY......Page 27
III. BUDGETS AND DEBTS......Page 31
IV. FISCAL CONSTITUTIONS......Page 35
Debt Procedures and Limitations......Page 40
Balanced Budget Restrictions......Page 43
RDFs and TELs......Page 45
VI. HISTORICAL PATTERNS AND RECURSIVE INSTITUTIONAL CHANGE......Page 47
VII. LESSONS......Page 52
REFERENCES......Page 55
2: Obligations Without the Power to Fund Them......Page 56
II. A BRIEF PRIMER ON THE FISCAL IMPLICATIONS OF THE FEDERAL SYSTEM......Page 58
III. HALFWAY TO KENYESIANISM– THE RISE OF COUNTERCYCLICAL EXPENDITURES AT THE STATE LEVEL......Page 61
IV. MEDICAID – THE EXPANSION OF THE UNEMPLOYMENT INSURANCE MODEL OF COUNTERCYCLICAL SPENDING......Page 64
V. TAXES – STRUCTURAL INADEQUACY AND PRO-CYCLICALITY......Page 66
VI. THE CHANGING NATURE OF ECONOMIC CYCLES......Page 68
VII. CONSEQUENCES – PART I – THE SOURCES AND MAGNITUDE OF STATE SHORTFALLS......Page 69
IX. SOLUTIONS – REFEDERALIZATION OF COUNTERCYCLICAL SPENDING OR STRUCTURED FEDERAL SUPPORT FOR STATES......Page 70
3: Public Pension Pressures in the United States......Page 73
I. A BRIEF BACKGROUND ON STATE PENSION PLANS......Page 74
II. THE STRUCTURE OF PUBLIC SECTOR-DEFINED BENEFIT PLANS......Page 75
III. RECENT CONCERNS ABOUT STATE PENSION PLANS......Page 76
IV. HOW IMPORTANT IS THIS?......Page 81
V. REFORMS UNDERWAY......Page 83
CONCLUSIONS......Page 86
REFERENCES......Page 87
4: Structural Challenges in State Budgeting......Page 93
I. REVENUE CHALLENGES......Page 94
II. VOLATILITY......Page 95
III. SALES TAX INSUFFICIENCY......Page 98
IV. PROPERTY TAX LIMITATIONS......Page 100
V. EXPENDITURE CHALLENGES......Page 102
VII. THE TEACHER EXPLOSION......Page 103
VIII. RISING MEDICAL COSTS......Page 105
IX. EMPLOYEE BENEFITS......Page 106
XI. TAX REFORM FOR STATES......Page 108
XII. CONTROLLING HEALTH CARE AND EDUCATION COSTS......Page 110
PART II: The Legal and Political Context of Public Debt......Page 113
5: What States Can Learn From Municipal Insolvency......Page 115
I. THE LIMITED UTILITY OF MUNICIPAL BANKRUPTCY......Page 116
II. CRITERIA FOR ENTERING BANKRUPTCY......Page 119
State Default......Page 124
Federal Bailout......Page 133
CONCLUSION......Page 137
INTRODUCTION......Page 139
I. THE PROBLEM OF FISCAL DISCIPLINE IN FEDERATIONS......Page 141
II. TWO PATHS TO FISCAL DISCIPLINE: HIERARCHY AND MARKETS......Page 143
III. WHEN FEDERATIONS FAIL......Page 145
IV. DEFAULT AND THE FOUNDATIONS OF MARKET DISCIPLINE......Page 147
V. IMPLICIT BAILOUTS AND THE CHALLENGE TO MARKET DISCIPLINE......Page 149
VI. CAN MARKET DISCIPLINE SURVIVE?......Page 151
VII. TOWARD A REFORM AGENDA......Page 157
REFERENCES......Page 161
INTRODUCTION......Page 162
I. DEBT AND DISTRESS......Page 166
II. SOVEREIGN DEBT RESTRUCTURING......Page 174
Episodes......Page 176
Costs and Consequences......Page 187
Lessons for States......Page 189
Motivations......Page 192
Proposals......Page 194
Obstacles and Objections......Page 199
Relevance for States......Page 201
CONCLUSION......Page 202
PART III: Evaluating Solutions......Page 205
INTRODUCTION......Page 207
I. WHAT DO WE MEAN BY BANKRUPTCY?......Page 208
II. A CASE FOR STATE BANKRUPTCY......Page 210
III. THE GENERAL FRAMEWORK......Page 213
An Immediate Discharge......Page 216
A Simple Voting Framework......Page 218
V. INITIATION REQUIREMENTS......Page 219
VI. WHO CAN INITIATE?......Page 221
VII. PROPOSING A REORGANIZATION PLAN......Page 222
VIII. OTHER PROVISIONS......Page 223
IX. CHECKS AND GUILLOTINE PROVISIONS......Page 225
X. FINANCING THE BANKRUPTCY PROCESS......Page 226
XI. THE BANKRUPTCY COURT......Page 228
CONCLUSION......Page 229
9: Fiscal Federalism and the Limits of Bankruptcy......Page 230
I. FISCAL FEDERALISM AND STATE FINANCIAL DISTRESS......Page 232
II. WHAT BANKRUPTCY CANNOT DO: CURE BAD BUSINESS MODELS......Page 238
III. BANKRUPTCY AS A POLITICAL TOOL......Page 240
CONCLUSION......Page 244
10: Extending Bankruptcy Law to States......Page 245
I. WHAT IS THE SIGNIFICANCE OF THE FACT THAT STATES ARE SOVEREIGN WHEREAS MUNICIPALITIES ARE NOT?......Page 247
II. HOW MUCH DOES BANKRUPTCY INTRUDE INTO SOVEREIGN POWERS?......Page 248
III. IS THE VOLUNTARY NATURE OF STATE BANKRUPTCY ENOUGH TO MAKE IT CONSTITUTIONAL?......Page 250
CONCLUSION......Page 252
INTRODUCTION: BANKRUPTCY FOR STATES......Page 253
I. STATE OR FEDERAL LEGISLATION (OR BOTH)?......Page 257
II. THE POLICY IMPLICATIONS OF RETROACTIVITY......Page 260
The States’ Faith and Credit Pledge......Page 262
The Contracts Clause......Page 265
CONCLUSION......Page 268
INTRODUCTION......Page 269
Public Sector Labor and Employment Law......Page 272
Labor Costs in Government Budgets......Page 277
Public Sector Employees Are Paid Less Than Comparable Private Sector Employees......Page 280
Pension Benefits and Coverage in the Public Sector: An Overview......Page 286
The Solvency of Government Pension Funds and Their Impact on State Budgets......Page 289
II. PUBLIC SECTOR BARGAINING DOES NOT CAUSE STATE AND LOCAL BUDGET CRISES......Page 294
California......Page 298
Nevada......Page 302
Texas......Page 305
III. COLLECTIVE BARGAINING AND SOLUTIONS TO STATE BUDGET PROBLEMS......Page 308
Bankruptcy......Page 309
Repudiation and the Contract Clause......Page 311
Real Solutions......Page 313
CONCLUSION......Page 319
APPENDIX......Page 321
Epilogue......Page 331
Index......Page 333