January 21, 2011 / 10:30 PM / in 8 years

Factbox: Big states spurn bankruptcy bill

NEW YORK (Reuters) - Some of the biggest U.S. states with the worst budget deficits on Friday rejected any federal help in the form of a bill that would allow them to file for bankruptcy — something they now are barred from.

Legislation that would allow U.S. states to file for bankruptcy will likely be introduced in Congress within the next month, Newt Gingrich, the former speaker of the House of Representatives who remains a powerful figure in the Republican party, told Reuters on Friday.

Because they are considered sovereigns, states are prohibited from declaring bankruptcy. Except for Vermont, all the U.S. states are required to end their fiscal years with balanced budgets.

The following are some of the comments on the expected legislation from state officials. Three of the states — New York, California and Illinois are among the biggest issuers of municipal bonds in the $2.8 trillion marketplace.

* TEXAS - A spokesman for Governor Rick Perry, who chairs the Republican Governors Association and — like Gingrich — is considered a GOP presidential contender, said: “In Texas, the governor and legislators practice fiscal responsibility and are required by law to have a balanced budget, something that Washington should adopt.”

— “Bankruptcy should not be a bailout for states that have been poorly managed. Families across America have to live within their means, and state and federal government need to do the same.”

* CALIFORNIA - Democratic State Treasurer Bill Lockyer said: “States didn’t ask for it. We don’t want it. We don’t need it.”

— “Bankruptcy would devastate states’ ability to recover from the recession and make the infrastructure investments that create good jobs. It would inflict severe injury on taxpayers.”

— “The people making this dangerous suggestion — and those who lend it credibility it doesn’t deserve — confuse states’ near-term budget deficits with long-term funding obligations. We are dealing with them by reducing benefits and increasing employees’ contributions, among other moves.”

— “With respect to our budget shortfalls, we have the tools to fix them without taking a wrecking ball to our economies and taxpayers.”

* NEW YORK - Democratic New York State Comptroller Thomas DiNapoli said: “Proposals in Congress to allow states to file for bankruptcy are unworthy of serious discussion. Just the availability of a bankruptcy option and the potential bond default could severely damage state credit ratings and destroy the trust of bondholders.”

- “Floating a bankruptcy option is an irresponsible tactic meant to scare the public into believing that short-term budget issues are insurmountable. That notion is false.”

— “Our economy cannot withstand another crisis in confidence. Bankruptcy may be presented as an easy way for states to walk away from bad fiscal management, but easy solutions are rarely the best solutions to very difficult problems. The best way for states to address their fiscal difficulties is to align recurring spending and revenue, not renege on obligations.”

* ILLINOIS - Democratic Governor Pat Quinn’s director of communications for the Governor’s Office of Management and Budget, Kelly Kraft, said: “We do not comment on hypotheticals. States cannot declare bankruptcy.”

Reporting by Joan Gralla in New York, Jim Christie in San Francisco, Michael Connor in Miami and Lisa Lambert in Washington, D.C.; Editing by Leslie Adler

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