Robert Miller

Opinion: A Better Alternative to State Bankruptcy or Default (WSJ)

Friday, May 29, 2020

BOND CONTRACTS THAT WAIVE SOVEREIGN IMMUNITY CAN PROVIDE CASH AND SOME MUCH-NEEDED DISCIPLINE

Miller, Robert

By John S. Baker Jr. and Robert T. Miller  |  May 7, 2020
 

With tax revenue crashing and expenditures soaring, states face severe financial problems. Illinois has already requested a federal bailout of its pension system, and last month Senate Majority Leader Mitch McConnell suggested that Congress should enact legislation allowing states to go bankrupt.

Thankfully, Mr. McConnell appears to have dropped the idea. Allowing states to declare bankruptcy would fundamentally contradict the federal structure of our constitution. In that structure, the states are self-governing entities. But as anyone who's endured the bankruptcy process knows, bankruptcy protection means the bankruptcy court is in charge. Federal bankruptcy protection would greatly constrain a state's sovereignty, or power to govern itself, which the Constitution guarantees.

But if states are free to govern themselves, they're also free to make poor choices. Decades of fiscal mismanagement left some states in a precarious financial position before the pandemic. Before Congress grants hundreds of billions of dollars to states—a step Mr. McConnell now says he'd entertain in exchange for legislation guaranteeing liability protection for businesses—it should consider an alternative grounded in prudence and reflection on American history.

 

To read the full op-ed in the Wall Street Journal visit: https://www.wsj.com/articles/a-better-alternative-to-state-bankruptcy-or...

 

Robert Miller earned his J.D. from Yale Law School where he was a Senior Editor of the Yale Law Journal and an Olin Fellow in Law, Economics and Public Policy. His scholarship concerns corporate and securities law, the economic analysis of law, and the philosophy of law. As an Iowa Law professor, he has taught courses in Business Associations, Mergers and Acquisitions, Law and Economics, Corporate Finance, Antitrust, Contracts, Deals, and Capitalism.