Should States Be Allowed To Declare Bankruptcy?

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Many states are facing severe financial shortfalls because of the corona virus outbreak several Republican leaders in Congress including Senate Majority Leader Mitch McConnell have suggested those states declare bankruptcy but federal law prevents states from doing that Kentucky public radio's Ryland Barton reports that McConnell's cash strapped home state is especially vulnerable Kentucky was struggling before the corona virus it's entered years of escalating budget cuts that go back to the two thousand eight financial collapse and now almost a third of the state's workforce has filed for unemployment this is led to a massive drop in income and sales tax collections which make up more than three quarters of the money Kentucky brings in every year democratic governor Andy Beshear is one of many governors who say they need more financial help from the federal government during the pandemic if the next Kerr sacked package does not include budget assistant for states and counties we will be hit with a rough for recession it will last longer and it will be harder to dig out of Kentucky senior senator Mitch McConnell doesn't support adding more money to prop up state budgets at least not without changes changes like letting states filed for bankruptcy here's McConnell on the Hugh Hewitt show recently I would sort of imply rollout that is the is the bankruptcy route if you save some settings and there's no good reason for it not to be available but cities counties even school districts are allowed to file for bankruptcy just not states that has always been the case for the entire history of the United States that's northern Kentucky university law professor ten captain he says Congress could pass a law allowing states to file for bankruptcy but then states would have to pass their own laws allowing it and then it would likely be challenged for violating the constitution's contract clause the main reason is that because there is so that states shouldn't be able to pass laws to relieve themselves of their own death orderlies the deaths of private debtors bankruptcy will allow a court to restructure a state's finances the biggest example of a city declaring bankruptcy was Detroit in two thousand thirteen as part of that process the court required city retirees to take a four and a half percent benefits cut and give up cost of living adjustments university of Pennsylvania law professor David Skeel says states should be allowed to declare bankruptcy he says it would allow sacrifices to be distributed more evenly absent bankruptcy who is the ticket yeah yep there's financial distrust of the state yes beneficiaries of state services president trump has weighed in on Twitter asking why should taxpayers bail out quote poorly run states like Illinois the couple has since softened his suggestion that states be allowed to declare bankruptcy saying it would have been optional and most wouldn't have done it anyway but with so many states struggling it's still an issue capturing attention from state houses to Capitol

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