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David Skeel Testifies before Congress on "State and Municipal Debt: The Coming Crisis?"

February 08, 2011
David Arthur Skeel, S. Samuel Arsht Professor of Corporate Law

Penn Law Professor David Skeel testified before the House of Representatives Committee on Oversight & Government Reform, Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs on Wednesday, February 9. The hearing was entitled “State and Municipal Debt: The Coming Crisis?” Skeel focused his remarks on the question of whether Congress should enact a bankruptcy law for states as an option for a state whose financial crisis is otherwise insurmountable.

In testimony prepared for the hearing, Skeel wrote:

"Some have argued that a bankruptcy option is not necessary, because nearly all of the states will be able to muddle their way through their fiscal predicament. This is like saying there’s no need for a fire department because most homeowners never have fires in their houses and if one starts they can probably stop it in time. This is true, but we still need fire departments for the rare case where a fire burns out of control …
"Now, more than ever, we need a fire department for state fiscal crises, a solution of last resort that does not depend on using a major federal bailout as a backstop. Although I believe that the concerns that have been raised by critics are exaggerated, they should be addressed by adjusting the bankruptcy law, rather than by foregoing the benefits that bankruptcy offers as a solution of last resort …
"I do not mean to suggest that bankruptcy would be a simple, silver bullet solution to a state’s travails. It wouldn’t be. It would be complicated and messy, and should be used only as a last resort. But, just as we needed to enact a municipal bankruptcy law in the 1930s, we need a bankruptcy law for states now."
Read Skeel's testimony and watch a video of the hearing at the House Oversight & Government Reform Committee website.
Related media written by or featuring Professor Skeel:
NPR (audio): Budget-Strapped States Might Prefer To Be Bankrupt
Wall Street Journal Op-Ed: A Bankruptcy Law—Not Bailouts—for the States
C-SPAN Washington Journal (video): States & Bankruptcy
Los Angeles Times: State Bankruptcy: The Best Fiscal Fix?
Fox Business (video): Chapter 9 for Pensions?
Wall Street Journal: Chapter 9 Weighed in Pension Woes
Weekly Standard Op-Ed: Give States a Way to Go Bankrupt