STATE OF THE STATES – AT 9:01 A.M. ET:  We may be in a season of good cheer, but there's very little to cheer about in several of America's most profligate states.  They face financial ruin.  Michael Barone suggests that bankruptcy may be their best course.  Can you just imagine it – California, Illinois and New York declaring bankruptcy?  For years, the elites of those states have proclaimed their moral superiority.  From RealClearPolitics:

...it's entirely possible that some state government -- California and Illinois, facing $25 billion and $15 billion deficits, are likely suspects -- will be coming to Washington some time in the next two years in search of a bailout. The Obama administration may be sympathetic. It's channeled stimulus money to states and TARP money to General Motors and Chrysler in large part to bail out its labor union allies.

But the Republican House is not likely to share that view, and it's hard to see how tapped-out state governments can get 60 votes in a 53-47 Democratic Senate.

How to avoid this scenario? University of Pennsylvania law professor David Skeel, writing in The Weekly Standard, suggests that Congress pass a law allowing states to go bankrupt...

...The threat of bankruptcy would put a powerful weapon in the hands of governors and legislatures: They can tell their unions that they have to accept cuts now or face a much more dire fate in bankruptcy court.

It's not clear that governors like California's Jerry Brown, who first authorized public employee unions in the 1970s, or Illinois's Pat Quinn will be eager to use such a threat against unions, which have been the Democratic Party's longtime allies and financiers...

...The policy arguments for a bailout of California or Illinois public employee union members are incredibly weak. If Congress allows state bankruptcies, it might prevent a crisis that is plainly looming.

COMMENT:  In the last election, there were Republican gains in both New York and Illinois, but not in California.  And in New York and Illinois, the gains were largely limited to congressional seats, not high state officials.  One reason for this is that state employee unions can send thousands, if not hundreds of thousands, of state employees to voting booths to help swing close elections. 

Unless the economy dramatically turns, the possibility of state bankruptices will loom large in the 2012 elections.  I wonder, though, if Obama will try to get a federal bailout of favored states first, a move that could cost him dearly in political terms...except in the proligate states affected.

November 29, 2010