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Overnight Open Thread

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lawhawk1/21/2011 9:10:55 am PST

re: #207 albusteve

It involves possibly changing Chapter 9 bankruptcies that are currently allowed for municipalities to be expanded to cover states.

That would have a domino effect, since state municipal bonds would drop to junk status since their credit is tied to state ratings and ability/responsibility to repay.

Bankruptcy would discharge some or all of the pension debts, but it isn’t a panacea.

A far better situation would be to regularize and adopt a municipal assistance corporation system that was used to help NY regain solvency in the 1970s early 1980s. Coupled with a pension benefit corporation that helps fund and reorganize the pension funds and obligations to balance competing interests - funding pensions promised and taxpayer burdens/obligations, the assistance will need to be a multi-pronged effort.

The ARRA of 2009 only delayed the situation by providing federal funding to cover massive deficits in FY 2010. With that money no longer available, the states are facing big holes in their budgets and no easy way to close them.

Even NY Gov. Cuomo is suggesting that massive state worker layoffs will be necessary - in the 10-15,000 range. That’s already got the unions stirring, and I expect Cuomo to spell out a couple of significant proposals - including a new pension tier that would actually shift new hires into a 401k system rather than a defined benefit system, and a worker buyout that lowers the workforce through attrition rather than a mass layoff.