IBD: GOP Planning Ahead To Avoid State Pension Bailouts 

Jan 23: Republicans expect states and local governments to beg Congress for relief from their underfunded pension programs sometime soon. But unlike Congress' haphazard, expensive responses to the Wall Street and automaker crises, GOP lawmakers intend to be ready this time.

Their plan has three parts: First, a nonbinding resolution that Congress will not bail out the pension programs; second, a bill to codify that into law and require transparent public pension accounting; and finally, a managed bankruptcy bill for the states.

All this is still at nascent stages, say GOP lawmakers. They haven't even started on the bankruptcy bill yet, which they expect to be highly complicated and face serious union opposition. Just getting most members to realize the scope of the problem is job one.

"The most important thing we need right now is accurate and current information, so that folks at all levels of government and all Americans ... know what the unfunded liability is," said Rep. Devin Nunes, R-Calif., sponsor of an anti-pension bailout bill.

The size of the problem is vast, says co-sponsor Rep. Jason Chaffetz, R-Utah.

The Pew Center on the States issued a report last year that overall they had $3.35 trillion in obligations and just $2.35 trillion set aside, a $1 trillion hole.

"If you look at the cases of Illinois, Kansas and California, inevitably they are going to have to come sooner rather than later. I want Congress to fire the first shot and say 'Don't even think of coming here,'" Chaffetz said.

The nonbinding resolution will be that first shot. It will also serve to force members of Congress to focus on the issue.

"Once you share the size and scope of the problem, most members don't have a problem getting behind the resolution," Chaffetz said, though the bill has no Democratic co-sponsors.

Next will come the Public Employee Pension Transparency Act. First introduced in late 2010, it would explicitly ban any future pension bailouts. It would also require enhanced transparency for pension reporting.

It will have the backing of two GOP heavyweights: California Rep. Darrell Issa, chairman of the Government Reform and Oversight Committee, and Wisconsin Rep. Paul Ryan, chairman of the Budget Committee.

Nunes expects it to be re-introduced in the first week of February though sources at the House Ways and Means Committee, where the bill would be referred, were noncommittal.

Then comes the hard part: a broader bankruptcy bill. Lawmakers are expected to take months to work through the intricacies of the law and size of the problem.

"There is going to have to be some sort of mechanism here. We haven't ever dealt with anything with this degree of severity," Chaffetz said.

That mechanism will probably give the states the power to adjust pension obligations and rewrite union contracts. That will likely face a serious fight from Big Labor. The number of private sector workers with union representation has soared in recent years to 36.2%. Private-sector unionization fell to 6.9% in 2010.

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Bloomberg: Senate leaders eye option of state bankruptcy

Jan 25: Senate Republican leaders said on Tuesday they were considering introducing legislation to allow financially stressed U.S. states to declare bankruptcy, even though the No. 2 Republican in the House of Representatives has rebuffed the idea.

"We're exploring that as a responsible option," Senator John Cornyn, who sits on both the Budget and Finance committees, told reporters.

Some Republicans have embraced the bankruptcy option, which would allow states to sort out finances and renegotiate contracts with public employee unions, as an alternative to sending in federal aid.

Pension obligations to state workers including teachers and law enforcement personnel pose a major burden on many states.

But analysts -- and states themselves -- are concerned that opening up a bankruptcy option would spook the buyers of state debt, driving up interest rates and making borrowing more expensive.

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