Bankruptcy for Government: Try It, You’ll Like It

Governor Kulongoski last week warned that the state was on the verge of a financial crisis. There were three things wrong with that announcement.

First, the governor failed to acknowledge either his role or the role of his Democrat party in creating this financial crisis. Second, he failed to identify and/or describe the underlying factors that brought about this crisis. And third, he failed to provide any direction for resolving the crises. What a guy.

The governor also failed to acknowledge the very real pain and suffering of everyday Oregonians brought about by the failure of his administration to lead in any meaningful way on any meaningful issue. Over 163,800 Oregonians have lost their jobs. The unfunded future liability of Oregon’s gold-plated Public Employees Retirement Systems (PERS) exceeds the biennial general fund budget and that doesn’t include the liability for bonds that were used to pay down the unfunded liability. Not a single program has been scrutinized for necessity, efficiencies or corruption. While increases for K-12 education continue unabated, Oregon’s children fall further behind their counterparts on a national level and even more so on an international level.

And don’t count on any “solutions” soon. Oregon is run exclusively by the Democrats — supermajorities in both houses of the legislature and every statewide office. The Democrats are financed by the Oregon public employees unions both directly with campaign contributions and indirectly with “volunteers”, “educational” mailings, and polling. There is simply no possibility that a party beholden to the primary beneficiaries of Oregon’s government excesses will ever find a solution — other than one tax increase after another.

So let’s try to rectify the shortcomings from Gov. Kulongoski’s acknowledgement of the pending financial crises.

First, whose fault is it? The fault lies solely with the Gov. Kulongoski and the Democrat controlled legislature. If you are the governor and your party controls both houses the responsibility for excessive spending lies solely at your feet. And please, don’t burden us with that baloney that it was a “bipartisan” effort because you were able to induce some soft-headed Republican’s vote by funding his or her pet project. That’s bribery not bipartisanship. And don’t blame the voters. You cannot spend extravagantly rewarding your financial arm — the public employees unions — and then cry crocodile tears over the lack of funding for schools, public safety and infrastructure and expect any different result. The voters were not given a choice over how you spent their money; they were only given a choice of losing services if they didn’t fund your excesses. Surely one of the lowest circles of hell is reserved for that kind of lying.

Second, what are the underlying causes of the financial crises? There are two — undisciplined spending and dominance of the public employee unions. In all likelihood the latter is the cause of the former. Outside of the members of the public employees unions, can anyone point to how he or she is better off in 2010 than in 2002 (the date of Kulongoski’s election as governor). I thought not and yet Oregon spent an additional $4.5 Billion dollars — an increase of 46.4%. No programs have been critically reviewed or audited. No programs have been tested for necessity or even efficiency. No programs have been adjusted to insure only those legally eligible are benefiting. And most importantly, no programs have been examined to see if they are improving — most critically the K-12 educational programs.

The performance of Gov. Kulongoski and his Democrat legislative colleagues as it relates to Oregon’s fiscal matters is the moral equivalent of giving the keys to your Corvette to a five-year old — he can reach the peddles but that’s about all.

And finally, is there a solution? Yes, it’s called bankruptcy.

But let’s not get hasty. Bankruptcy is really a process of last resort. We are probably going to learn a lot more about it given that three major California cities (Los Angeles, San Diego and San Francisco) now face the distinct possibility of filing for bankruptcy before the summer solstice. The preferred solution is for elected officials to act responsibly but that isn’t going to happen in Oregon — just like it is not going to happen in California. And in the end that leaves just bankruptcy.

In Oregon’s case here are some of the things that a bankruptcy proceeding could do:

1. Modify PERS, including modifying the benefits available to both current and future recipients and forcing public employees to pay for their own contributions to the system (this latter act would effectively reduce Oregon’s current payroll by six percent). The fact that Oregon’s Supreme Court (all beneficiaries of PERS) have previously ruled that you cannot modify or reduce PERS benefits is irrelevant to a bankruptcy court.
2. Modify current wage structures to force wage rates to more closely approximate private sector wages for comparable jobs. (A study by Oregon’s own Department of Employment indicates that public employees receive up to one-third more for comparable jobs in the private sector and that does not include their amped up PERS and healthcare benefits.
3. Modify the “work rules” in public employee union contracts to promote efficiencies. First among those would be the elimination of the provision agreed to by Gov. Kulongoski that prohibits outsourcing of any function currently performed by a public employee union member — regardless of savings or efficiencies.
4. Force reduction of the number of public employees to accommodate the current revenue projections.
5. Require a financial and performance audit of every government function and a ranking for elimination or modification.

But let’s understand also there is a substantial limitation to the power of a bankruptcy judge. The judge cannot simply sua sponte order any of the actions listed above. The judge can either approve a plan submitted that includes these items or refuse to accept a plan if they fail to contain any such items. In other words the outcome of a bankruptcy proceeding is not necessarily foretold and it, like most things today are subject to political pressures — note the bankruptcy proceedings for General Motors and Chrysler where the outcome was preordained by the ability of the federal government to withhold funds if it did not agree.

But given the inability of Oregon state government, or for that matter many of the local governments to bring the public employee unions to heel; I opt for bankruptcy — even with its inherent weaknesses and unpredictability. Certainly it couldn’t be worse than what Oregon has.