California’s State Treasurer: States Should Not Consider Bankruptcy

January 26, 2011

Some conservative governors and state legislators and their right-wing allies are floating a dangerous suggestion that threatens the retirement security of public sector workers: Have states declare bankruptcy to get out of their pension obligations.

Whoa!

In a briefing for journalists this week hosted by the Economic Policy Institute, California State Treasurer Bill Lockyer (D) called this idea “a cynical proposal, intended to incite a panic in response to a phony crisis.”

A crazy idea, indeed! Lockyer put it this way: “Killer bees, space aliens, and now it’s the invasion of the bankrupt states.”

But this is a serious proposal by those who are making it, including former Republican House Speaker Newt Gingrich. On Capitol Hill, House Republicans are already planning to introduce legislation allowing states to file for bankruptcy.

At stake are not only state obligations to protect the retirement security of their employees, but also their hard-won collective bargaining agreements.

The suggestion that states would risk their credit ratings by declaring bankruptcy in a ploy to get rid of their pension and union contract obligations seems far-fetched, but the risks are too great to ignore it. AFSCME is fighting back by making the case to lawmakers that there are other solutions to their budget woes. Several of them are described in AFSCME's 2011 State Legislative Agenda.

Listen to Lockyer on a news conference call with EPI officials (42 min. 21 sec.):