Q&A Friday #104: Revoking Statehood For Bankrupt States?

For my question, what is your take on the idea of revoking statehood for any state that declares bankruptcy? Good idea? Bad idea? I live in Illinois and I think I’m willing to take one for the team if it means Dick Durbin would be out of a job. — Mike Hickman

First off, let me explain the idea to people.

If a state, like California or Illinois, were unable to pay its bills, then their statehood would be revoked and they’d be treated like a US territory. They wouldn’t have any representatives in Congress and they’d have to get their financial house in order to be allowed back into the United States.

Personally, I don’t think that’s the best way to handle the situation. Moreover, the constitutionality of it would be challenged, the public would think it is extremely radical, and you’d have great difficulty even getting a large majority of conservatives to support it.

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So, how should we handle a state going bankrupt, which, incidentally, is probably going to happen in the next few years?

First off, there absolutely, unconditionally, should be no bailout. A bailout would not only be unfair to people in other states; it would encourage the irresponsible behavior to continue by protecting states from the consequences of their own poor spending choices. In other words, if a state goes bankrupt, they need to feel major pain in order to convince them to change how they’re operating. If we bail them out, they can make empty promises about doing better in the future and then they’ll go right back to business as usual.

Instead, Congress should create a process that will allow states to go bankrupt. That process should allow the states to renegotiate or end their union contracts and it should also allow them to be released from their obligations to pay pensions and retirement benefits to former government workers. Now, ending the union contacts? I love that idea.

But, not paying retirement benefits and pensions? I don’t feel as good about that because this is something that these irresponsible states have promised to people. However, the fact of the matter is that they can’t afford to pay what they owe and it’s just as wrong to ask taxpayers in other states to pay those benefits as it is to not pay them in the first place.

Unfortunately, when bankruptcies occur, whether a person, a business, or a state is involved, people who’re owed money are going to get screwed. That’s just how it works and in this case, government workers are going to be the biggest creditors involved. If somebody is going to get stiffed, it’s going to have to be the taxpayers or them, and it wouldn’t be good for the country or even the bankrupt states if the taxpayers were forced to pick up the enormous tab.

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