The Bankruptcy Option
Given the long political, economic, electoral, etc. track record of this state, many believe that the only solution to fixing Rhode Island lay in bankruptcy. Well, if that is indeed a solution, then this post by Richard Epstein is concisely informative on the topic. Epstein explains the how’s and why’s, but then concludes that bankruptcy probably isn’t an option.
I don’t think that full-fledged bankruptcy is a realistic prospect as of now. I think that the much more sensible approach is to side-step the bankruptcy proceedings and find ways to attack the union pension obligations directly, given their enormous size. It is odd that these days the only sacred contracts are those which the state enters into with unions for the benefit of their members.
Nonetheless, the courts would eventually get involved:
The key question is whether it will be possible to persuade the courts that these pension agreements were the result of political self-dealing, which means that they should be set aside unless it could be shown that the state received fair value for the services rendered when it made those deals. I think that case is bold but winnable, yet only when the situation becomes truly desperate. Funding that litigation will take some bankrolling, but the corporate-law analogies on self-dealing make it pretty clear that the state legislatures violated all their duties of loyalty to the public at large when they entered into deals from which union pension funds got all the upside and everyone else got the downside. Not nice. Undoing it is the work of the next generation.
That all strikes me as speculative at best, at least in Rhode Island. It just isn’t the way this state works.