"Secret GOP plan: Push states to declare bankruptcy and smash unions"

So runs the headline on a very interesting Reuters column from James Pethokoukis yesterday. Here's how it begins:

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

That's why the most intriguing aspect of President Barack Obama's tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program.  BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31.  And my Reuters colleagues report that a GOP congressional aide said Republicans "have a very firm line on BABS — we are not going to allow them to be included."

In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities. The long-term numbers are even scarier. Estimates of states' unfunded liabilities to pay for retiree benefits range from $750 billion to more than $3 trillion.

Republicans in the House of Representatives already want to stop state and local governments from issuing tax-exempt bonds unless they are more forthright about these future obligations. Republican Representatives Devin Nunes and Darrell Issa of California and Paul Ryan of Wisconsin have introduced a bill that would require state and local governments to estimate the size of public pension liabilities if their assets earned a more conservative rate of return than many plans currently expect. Failure to do so would result in the suspension of their ability to issue tax-exempt bonds.

Some related Reason headlines:
* "Failed States: After a long spending binge, governors go begging for a handout. It won't be their last," May 2009
* "The Next Catastrophe: Think Fannie Mae and Freddie Mac were a politicized financial disaster? Just wait until pension funds implode," February 2009
* "The Municipal Debt Bubble: As cities and states boost their debts by 800 percent, a housing-like crisis looms," January 2011.

That last piece is in the issue currently being mailed to subscribers. So subscribe, already!

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Joe M||

    Just blow her up and drink heartily from the furry cup...

    The mind boggles.

  • ||

    Products like this remind me what a square and strait-laced guy I am. Compared to the people who buy this product, I am dull dull duuuuull!

  • Law Student||

    Ali : But do you not think that single sex girls schools bread, well, people who drink from the furry cup?

    Rhodes : Well never having drunk from the furry cup one doesn't know what liquor is kept in it.

    Ali : Well you know them girls who drink from the furry cup, also, eat from the bushy plate. You know what I is getting at?

  • ||

    Greatest metaphor I've ever heard: "it's like eating sardines out of a coonskin cap."

  • ||

    THAT IS THE GREATEST METAPHOR EVER. I am keeping that.
    There is a bigcherry.org, but unfortunately I could not find an inflatable beer babe...cause I would like to sip from the furry cup...just because I like to try novel ...stuff.

  • ||

    Go forth and erh, uh, spread the word.

  • ||

    There is a recurring theme in the Bible of the cup of fury (Isaiah 51, Jeremiah 25, Revelation 14 and 16), which the wicked must drink down to the dregs. I wonder if that's what the furry cup is related to.

  • ||

    Oh, yeah. Trust me, if you don't treat the furry cup right, it will, repeat, will, turn into the cup of fury.

  • hmm||

    Funny. That plan is how unions tried to become more powerful, just flip the participants.

    Sounds like a good plan to me. Then again I think restructuring to get rid of unions is a good plan for any entity, private or public.

  • ||

    absent restructuring through banruptcy, there is no way the states can pay the massive pension liabilities owing to unionized government workers

    in california, this liability is currently $40,000 per family

  • Steve||

    "Secret GOP plan: Push states to declare bankruptcy and smash unions"

    I wish that the GOP was that smart...and that principled...

  • The Other Kevin||

    That was my first thought, too. IF ONLY...

  • Fist of Etiquette||

    And I'm pretty sure the only thing the GOP does in secret is the thing that will line their own pockets or to drink from the furry cup that is not their wives'. Everything else is done loudly and in front of as many cameras as they can find.

  • Restoras||

    My thoughts as well.

  • ||

    The GOP is simply not capable of that level of competence.

    AMOF, I doubt the GOP is capable of competent continence.

  • ||

    Is this article from a paranoid TEAM BLUE member or an approving TEAM RED member? If it's the former, it's probably bullshit conspiracy mongering; if the latter, it's probably bullshit smoke blowing.

  • No Name Guy||

    The sooner Cali goes chapter 7, the sooner sanity can be restored.

    Sadly, I predict the way it'll go will be something like TARP or Patriot. Quick, there's a panic, we have to pass something, ANYTHING, in 3 days. And that something that will be passed will be a bail out. It'll take a few days for the Fed to print the bricks of money, and a few more for the trains to haul it there, but that's what will happen.

    Instead of what SHOULD happen: "Need a bail out there Gov Moonbeam? Yeah....Drop Dead! Then go file for bankruptcy."

  • Dan||

    Why would a Republican-controlled House of Representatives pass a California bailout? I live in California and I don't see what's in it for the Republicans. What, like we're going to vote for them out of gratitude? Please.

  • SIV||

    Look at the last election and how many TARP voters got tossed

    If the House votes to bailout the states the GOP is fucking toast. If they don't, and force bankruptcies, we're actually getting somewheres. Looks like a BIG win either way.

    (Check out my blog. Page #1 is SFW and features Barbarella/Hanoi Jane, Dita, and Kate Winslet.)

  • No Name Guy||

    Dan and SIV, perhaps I'm too cynical. I'd love it if they had a brass, hell, they'll need an iron set to say no, but one has to wonder what bullshit will be pulled.

    As I said in the post on this earlier - what I want (Cali to go bankrupt, for their own good) and what I expect (bailout) are two different things.

  • Dan||

    They don't need brass or iron to refuse to bail out California. There are 50 states. 49 of them have no interest in bailing out California. A good portion OF California doesn't even want California bailed out.

  • stoneymonster||

    Has anyone else noted that Reason is now the slowest website EVAR to load? What is going on?

  • ||

    I've noticed it from work, but I have to use IE. At home I use Safari and it's pretty fast.

  • The Gobbler||

    It's the direct result of their latest upgrade.

  • ||

    It doesn't so much run slow for me, but on reload it just sits there a lot of the time, grinding away, trying to load some fucking ad that is blocked anyway.

  • stoneymonster||

    Yup either some crap from facebook or twitter sits there for a looooong time.

  • Bingo||

    It's all the twitter/facebook things.

  • Tim||

    Who switched Obama's breaker from "socialism" to "Adam Smith" ?

  • Quiet Desperation||

    I'm in California. This plan gets the rare and highly coveted
    Quiet Desperation ★Seal★ ★Of★ ★Approval★

    Anything that gets radio ads from that douchebag miseryshit David Sanchez (head of the Califronia Teacher's Association) off the air is fine by me.

    And read the opening line of this dickhead: http://members.csea.com/member.....fault.aspx

  • Gibby||

    "Babs The Blow Up Beer Babe
    Never tires never nags and will even come out on the town with you!

    Does all the things you wouldn’t dare ask your girlfriend – just blow her up and drink heartily from the furry cup…

    Bab’s The Blow Up Beer Babe is your newest drinking buddy!

    Blow her up and insert beer bottle into her behind, then drink from her furry cup while her boobs push into your face!

    Absolutely hilarious adult fun for stag nights etc."

  • ||

    So, the diabolical Republicans want to

    (1) Require truth in accounting on state pension obligations.

    (2) Require truth in borrowing by states.

    (3) Remove federal guarantees/backing from state borrowing.

    Sounds long overdue to me. The result is likely to be higher borrowing costs for states, forcing more and more "austerity" on state budgets and/or higher state taxes. Fine. Whatever.

    Now, as I understand it, states can't actually declare bankruptcy (although municipalities can), so there will have to be federal legislation to allow that. What a rodeo that will be. I suspect the venom and abuse directed at the Repubs who will have to support the bill will far exceed their limited capacity to stand firm.

    There are just so many ways, so very many ways, that our current unsustainable government(s) can crack up. Will it be serial state defaults on any number of obligations, with no clear legal recourse? Will it be a collapse of the currency and the borrowing facilities at the federal level?

    The real imponderable, for someone like myself planning to make money on all this, is the timing. 2012? 2014?

  • ||

    I am not sure how you make money from states defaulting on debt. And I suspect you and other gold bugs will be losing your asses when the gold bubble finally bursts.

  • SIV||

    I am not sure how you make money from states defaulting on debt.

    Short selling the bonds?

  • SFC B||

    I'm fairly certain the first act of this administration will be to round-up all short sellers.

    You know... for the... safety... of the... childrens... or something...

  • ||

    We can only dream the Republicans actually would do something like this. If they do, they are due some serious love.

    Putting these states into receivership would be fabulous. It would force them to make real cuts in their budget. I would even offer them a little bit of aide in I were the feds. But I would do it with a million strings attached that made them lower their tax rates and repeal their idiotic environmental laws. I would love to tell California they could save some of their pensions in return for allowing off shore drilling, disavowing any regulation of CO2 and repealing about 3/4ths of their business regulations. I would love to see California liberals tear each other apart over that dilemma.

  • ||

    And I suspect you and other gold bugs will be losing your asses when the gold bubble finally bursts.

    The people who lose their asses when bubbles burst are the ones who come in late, especially the ones who are speculating on margin. Which ain't the "gold bugs."

    Now, I'm exposed right now in some gold and silver stocks. Even after the beatings I took today and yesterday, I'm still up nearly 35% for the year, and the technicals I follow aren't giving me any sell signals, yet.

    So don't worry about me. I'll be fine.

    How to profit off of sovereign defaults and currency collapses? Ask George Soros; its how he made his billions.

  • bmp1701||

    This plan would require the GOP to have acquired principles. Somehow, I doubt it.

  • LarryA||

    a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds.

    “We’re up to our ass in debt. What we need is more borrowing.”

    Sheesh.

  • convexhull||

    The bill requires State and local pension plans to use distinct interest rates for valuing their assets and liabilities. It would be just as wrong for pension plans to value their liabilities using a more conservative interest rate if that rate were the rate of return the plan expects to receive on assets. The bill requires plans to use a lower interest rate because using the rate of return on assets (most plans use 8%) assumes that plan liabilities are riskier than than they in fact are.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement