James Spiotto is a nationally recognized legal expert on insolvency. At an upcoming Brookings Institute conference on municipal finance, he will be delivering a significant new paper, with an appropriately long title: “When Needed Public Pension Reforms Fail or Appear to Be Legally Impossible, What Then? Are Unbalanced Budgets, Deficits and Government Collapse the Only Answer.”
The paper is linked here.
It’s for legal and policy wonks, but it’s important, primarily because it lays out the case for why and how the federal government and federal courts can and should play a role in solving state and local fiscal crises, particularly in Illinois.
Ideas discussed include a special federal bankruptcy court for pensions. That aspect of the paper is also discussed in a Bond Buyer article linked here.
Pre-packaged Chapter 9 municipal bankruptcy is also discussed.
The paper also supports precisely what I wrote in my Crain’s article this month. When basic government services begin to fail, as they are in parts of Illinois, federal courts will recognize a “police power” that trumps other state and federal constitutional limitations.
The paper further contains model guidelines for a constitutional amendment on pension funding where state constitutional and statutory provisions and court rulings appear to prohibit or impair needed pension reform. I haven’t fully thought through those model guidelines and can’t say whether I agree with all of it, but they’re clearly well thought out and conformed to Spiotto’s reading of existing precedent.
This article was updated 7/17/17/ to describe more of what the paper contains.
–Mark Glennon is founder and executive editor of Wirepoints.