On Thursday, January, 27, POLITICO asked its ARENA panel about the following issue:
Newt Gingrich and Jeb Bush are calling for states to be allowed to declare bankruptcy, warning in a Los Angeles Times op-ed that more bailouts could be coming if states facing record budget shortfalls — such as California, Illinois and New York — don’t get their fiscal houses in order. “Federal taxpayers in states that balance their budgets should not have to bail out the irresponsible, pandering politicians who cannot balance their budgets,” Gingrich and Bush write. (http://lat.ms/gDl8mD). The process would have to be completely voluntary (to maintain state sovereignty) and allow states that declare bankruptcy to free themselves from union contractual obligations, the two Republicans say.
Meanwhile, Rep. Patrick McHenry (R-N.C.) says he’ll hold hearings next month on whether states should be allowed, for the first time, to file for bankruptcy protection. (http://politi.co/i9Gego). While the proposal has gained steam among some conservatives who want to avoid another federal bailout, there’s a divide in opinion; for instance, House Majority Leader Eric Cantor (R-Va.) says states have better options than bailouts or bankruptcy to avoid default.
Should states be allowed to be declare bankruptcy, as Gingrich and Bush propose?
I responded that:

States cannot declare bankruptcy because it would undermine confidence in their bond issues and irreparably harm public sector unions. I’m all for responsible fiscal measures and reduced spending, but not gutting all obligations to pubic sector retirees. Residents of the various states are going to have to decide whether they want high levels of state services or reduced taxes, they can’t have both. Cutting taxes will reduce the public sector workforce and the level of services provided to residents. States should begin to adopt GAAP accounting principles, so state treasurers and the public can know how “real” money they have in assets and what they have as debits. 
States also could save money on pension costs by removing automatic COLAs, require workers to contribute towards to their pensions, require health care co-payments, and end pension padding practices in the extreme. Governors and state legislators should lead by enacting reforms that remove elected and appointed officials from “defined benefit” plans and place themselves in “defined contribution” plans. I agree with my former colleague Assemblyman Michael Fitzpatrick‘s argument that the political class has no right to the same pension benefits as career civil servants. He and I and others ran for public office to make government responsive to the people, not to make public office a career. So, pension reform should begin with the lawmakers taking the first bite of the bullet.
Bankruptcy would be a recklessly bad idea. Our Union cannot be strong if states were to seek bankruptcy protections and default on their obligations to residents, pubic sector retirees, and bondholders. We are still the United States of America, not the American Union. [polldaddy poll=4472450]