Friday, January 21, 2011

The Possibility of State Bankruptcy is Being Raised

Many states have been hurt by the recession. Tax revenues have declined and they are unable to reduce expenditures to match revenue drops. There are lots of legal issues that would prevent states from using bankruptcy protection but he GOP is likely to view that path favorably. They view the GM bankruptcy as the model for the states. GM used bankruptcy to force its unions to reduce wages and to give up pension and healthcare benefits. The GOP would see this as another way to pursue their policy of "defunding the Democrats". Government employee unions have been supporters of the Democratic Party. They have been targets of GOP attacks along with Teacher Unions which also support Democrats. I doubt that the federal government will let this happen but the GOP would relish the opportunity.

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