The three senators have introduced an amendment to the Transportation, Housing and Urban Development appropriations bill currently before the Senate. The amendment requires that no money appropriated to the Department of Transportation or the Department of Housing and Urban Development be used to spare a local government from being placed into receivership, to allow a local government to exit from receivership, or to prevent a state government from defaulting on its obligations.
“Ballooning debt – driven largely by bloated retiree pension and health benefits and mismanaged budgets – has financially crippled cities and municipalities across the country and even forced them into bankruptcy,” said Hatch. “Whatever the financial fiasco, however, it’s the responsibility of the local governments to fix. The federal government will not step in, as this amendment makes clear, and bail them out. We’re not going to leave taxpayers on the hook because local governments can’t manage a budget and live within their means.”
“Detroit’s debt is a national poster-child of what can result when politicians enter into an unholy alliance with powerful unions at the expense of the local economy and the people who live there. Federal Bankruptcy Court is the proper venue for settling debts that taxpayers cannot afford,” Johnson said. “What must not happen is a federal bailout that spares Detroit from making the needed reforms that the bankruptcy process may require. Any federal bailout means other municipalities and states who have a similar history will expect a federal rescue as well.”
“By no means should the federal government be in the business of bailing out state and local governments that are in the red,” said Vitter. “The federal government stepped in to rescue the banks and the auto industry, but people have had enough – we can’t afford any more bailouts. State governments face political and fiscal dilemmas that only become more complicated when the federal government steps in.”
Hatch, whose Committee has jurisdiction over pension policy, issued a report on the public pension debt crisis emphasizing the importance of avoiding a federal bailout of state and local government (here) and recently introduced S. 1270, the Secure Annuities for Employee (SAFE) Retirement Act of 2013, that makes a new type of pension plan available that can never be underfunded and going forward removes pension-related risks of federal bailouts of State and local governments.