Illinois is mentioned prominently in the New York Times article on the prospects for a federal law implementing a method for states to declare bankruptcy:
Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.
Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.
But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.
without considering whether bankruptcy would actually help Illinois to resolve its problems. I strongly suspect that Illinois’s unique constitutional protections for public employee pensions would cause a bankruptcy that didn’t preserve those pensions to run afoul of the Takings Clause of the Fifth Amendment to the Constitution:
No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
The emphasis is mine. Any bankruptcy for Illinois that did not preserve public employee pensions would undoubtedly be challenged in the courts and the question would be whether Illinois’s constitutional provisions create a property right to those pensions.
I think they do. Public employee pensions are about a fifth of Illinois’s budget; healthcare costs, mostly mandated by the federal government, are about a third. Will an Illinois bankruptcy that preserves half of its budget accomplish much? I don’t see it. Not to mention that many of the state’s creditors are city and local governments. How does pushing the problem down to already over-burdened local governments, restrained from seeking additional revenues by state law, help?
The courts would probably mandate further increases in the state’s income taxes. I’ve already documented that solving Illinois’s fiscal problems without substantial cuts would make Illinois the most highly taxed state bar none. There’s a formula for growth. We could put it on the license plates. From “Land of Lincoln” to “Highest Taxes”.