Table Of ContentWhen States Go Broke
When States Go Broke collects insights and analyses from leading academics and
practitioners who discuss the ongoing fiscal crisis among the American states. No
one disagrees with the idea that the states face enormous political and fiscal chal-
lenges. There is, however, little consensus on how to fix the perennial problems
associated with these challenges. This volume fills an important gap in the dialogue
by offering an academic analysis of the many issues broached by these debates.
Leading scholars in bankruptcy, constitutional law, labor law, history, political
science, and economics have individually contributed their assessments of the
origins, context, and potential solutions for the states in crisis. It presents readers –
academics, policymakers, and concerned citizens alike – with the resources to begin
and continue that important, solution-oriented conversation.
Peter Conti-Brown is an Academic Fellow at the Rock Center for Corporate
Governance at Stanford Law School and the Stanford Graduate School of
Business. His research focuses on banking regulation and financial and fis-
cal crises, and includes articles published in the Stanford Law Review, UCLA
Law Review, and the Washington University Law Review, among other law
journals.
David A. Skeel, Jr., is the S. Samuel Arsht Professor of Corporate Law at the
University of Pennsylvania Law School. He is the author of The New Financial
Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences
(2011), Icarus in the Boardroom (2005), and Debt’s Dominion: A History of
Bankruptcy Law in America (2001), as well as coeditor with Michael Klarman
and Carol Steiker of The Political Heart of Criminal Procedure (2011), a collection
of tribute essays to William J. Stuntz.
When States Go Broke
The Origins, Context, and Solutions
for the American States in
Fiscal Crisis
Edited by
Peter Conti-Brown
Rock Center for Corporate Governance
Stanford University
David A. Skeel, Jr.
University of Pennsylvania School of Law
cambridge university press
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© Cambridge University Press 2012
This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without the written
permission of Cambridge University Press.
First published 2012
Printed in the United States of America
A catalog record for this publication is available from the British Library.
Library of Congress Cataloging in Publication data
When states go broke : the origins, context, and solutions for the American states in
fiscal crisis / [edited by] Peter Conti-Brown, David Skeel.
p. cm.
Includes bibliographical references and index.
ISBN 978-1-107-02317-8 (hardback)
1. State government bankruptcy – United States. 2. Finance, Public – United
States – States. I. Conti-Brown, Peter, 1981– II. Skeel, David A., 1961–
KF1535.S73W54 2012
336′.01373–dc23 2012006886
ISBN 978-1-107-02317-8 Hardback
Cambridge University Press has no responsibility for the persistence or accuracy of URLs
for external or third-party Internet Web sites referred to in this publication and does not
guarantee that any content on such Web sites is, or will remain, accurate or appropriate.
Contents
List of figures page vii
List of tables ix
List of contributors xi
Acknowledgments xiii
Introduction: The Perennial Crisis for the American
States
Peter Conti-Brown 1
PART I. THE ORIGINS OF THE STATES IN
FISCAL CRISIS
1 Fiscal Institutions and Fiscal Crises
Isabel Rodriguez-Tejedo and John Joseph Wallis 9
2 Obligations Without the Power to Fund Them
Damon A. Silvers 40
3 Public Pension Pressures in the United States
Olivia S. Mitchell 57
4 Structural Challenges in State Budgeting
Josh Barro 77
PART II. THE LEGAL AND POLITICAL CONTExT
OF PUBLIC DEBT
5 What States Can Learn From Municipal Insolvency
Clayton P. Gillette 99
v
vi Contents
6 Market Discipline and U.S. Federalism
Jonathan Rodden 123
7 American States and Sovereign Debt Restructuring
Adam Feibelman 146
PART III. EvALUATING SOLUTIONS
8 State Bankruptcy from the Ground Up
David A. Skeel, Jr. 191
9 Fiscal Federalism and the Limits of Bankruptcy
Adam J. Levitin 214
10 Extending Bankruptcy Law to States
Michael W. McConnell 229
11 Bankruptcy For the States and By the States
George Triantis 237
12 Labor and the States’ Fiscal Problems
Catherine Fisk and Brian Olney 253
Epilogue – David A. Skeel, Jr. 315
Index 317
Figures
1.1 Adoption of first constitutional debt restrictions,
by decade page 25
1.2 Number of states that have a constitutional debt
restriction, by decade 25
1.3 Adoption of first constitutional BBR, by decade 28
1.4 Number of states that have a constitutional BBR,
by decade 29
1.5 Number of adoptions of RDFs, by decade 30
1.6 Number of state rainy day funds, by decade
and type 30
1.7 Limits on traditional TELs and property tax
limitations, by decade of first adoption 31
1.8 Number of states that have traditional TELs and
property tax limits, by decade 32
1.9 Adoption of constitutional fiscal institutions 32
1.10 Number of states that had adopted each type of
constitutional fiscal institution, by decade 33
3.1 Anticipated year of exhaustion for state pension
fund assets 68
4.1 Pie chart of state and local tax sources in 2008 79
4.2 Graph of pupil-teacher ratios and education
spending as a share of GDP over time 88
6.1 The growth of federal grants relative to state and
local current expenditures 134
6.2 Credit default swaps for selected U.S. states 137
6.3 Credit default swaps for selected U.S. states and member
states of the European Monetary Union 138
vii
viii List of figures
6.4 Debt-to-GDP ratios for European countries and U.S. states 139
12.1 Unadjusted Hourly Compensation – Public and Private
Sector Compared: 2011 265
12.2 Adjusted Hourly Compensation – Public and Private Sector
Compared: 2011 266
12.3 Public Pension Plan Funding Ratios by Extent of Collective
Bargaining Rights: Fiscal Year 2009 277
12.4 Median Budget Gap by Extent of Collective Bargaining
Rights: Fiscal Year 2012 280
12.5 Median Budget Gaps by Extent of Collective Bargaining
Rights, Fiscal Years 2009–2011 280
12.6 Median State Workforce as a Percentage of Total Workforce
by Extent of Collective Bargaining Rights: 2009 281
12.7 Median State Labor Expense as a Percentage of State Budget
by Extent of Collective Bargaining Rights: Fiscal Year 2009 282
