Rep. Hank Johnson's statement on the Role of Public Employee Pensions in Contributing to State Insolvency

February 17, 2011

The Honorable Henry C. “Hank” Johnson
 For the Hearing on the Role of Public Employee Pensions in
Contributing to State Insolvency and the Possibility of a
State Bankruptcy Chapter

Monday, February 14, 2011 | 2141 of the Rayburn House Office Building 

With all due respect to my friends on the other side of the aisle, I must wonder aloud why it is that we are holding this hearing today.  Ostensibly, it is about whether states should be permitted to file for bankruptcy, but from what I can tell, none of the witnesses claims that bankruptcy is a panacea for a state’s financial troubles.

We seem to agree that allowing states to file for bankruptcy would result in increased interest rates, making it more expensive for states to address their financial needs.  Moreover, a state bankruptcy option would create greater instability in the financial market.

There also seems to be some shared concern about respect for state sovereignty in that federal bankruptcy law could be used to override state constitutions and laws prohibiting an impairment of contractual obligations.

Finally, states already have the tools at their disposal to address any financial troubles they face, as Majority Leader Eric Cantor has noted.  States have the ability to adjust revenues and spending and to renegotiate their financial obligations with creditors.   Indeed, I get the strong sense that state bankruptcy may be a solution in search of a problem.

Why are we wasting time on what promises to be something of an esoteric discussion about a proposal that few, if anyone, on this Committee appear to support?

 Instead, we should be talking about what Congress will do to accelerate economic recovery and create jobs, which, in turn, will help states recover financially.

We should be talking about the continuing mortgage foreclosure crisis and how Congress will help hard-working American families stay in their homes.

We should be talking about crushing private student loan debt that threatens to stifle educational opportunities for people of modest means.

We should be talking about how to improve the bankruptcy process so that it can better help honest but unfortunate debtors who have fallen on hard times because of the lingering effects of the 2008 financial crisis, a crisis brought about by Wall Street’s reckless behavior.

Unfortunately, I suspect we are here talking about state bankruptcy because of a cynical attempt by the likes of Newt Gingrich, Jeb Bush, Dick Morris, and Grover Norquist to demonize public employees for political reasons.  Let’s call this what it is – an attack on a group of workers - including state troopers, prosecutors, and teachers - that these proponents of state bankruptcy simply do not like.

In fact, public pensions barely have an impact on a state’s financial health.  Less than three percent of all state and local government funding is spent on pension benefits, as most such benefits are paid out of trusts funded by employees and their employers.

But why let facts get in the way of political opportunism? 

The proponents of state bankruptcy don’t even bother to hide their true intent.  For instance, in a Los Angeles Times op-ed piece published last month, Mr. Gingrich and Mr. Bush pointed to the “stranglehold government employee unions have on state and federal budgets,” rather than the severe economic recession of the last few years, as the reason for states’ fiscal problems.

Even more crassly, Mr. Morris wrote a piece for The Hill arguing in favor of state bankruptcy because it would “break the political power of [public employee] unions and undermine the labor-Democratic Party coalition[.]”

Hopefully, sensible minds on both sides of the aisle, including Majority Leader Cantor, Judiciary Committee Chairman Lamar Smith, and Subcommittee Chairman Howard Coble, will carry the day on the issue of state bankruptcy and not allow naked political calculation to answer serious constitutional and policy questions.


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