Repudiating state debt should be a key tea party issue

Repudiating state debt should be a key tea party issue
By SETH GROSSMAN, Political Columnist

(Reprinted from September 29, 2010 Current-Gazette Newspapers of Atlantic & Cape May Counties,…rty-issue.html)

?Bankruptcy has become an acceptable and, in many ways, successful way for debt-burdened companies and consumers to get a fresh start. Airlines do it. Auto companies do it. ? More than 1.6 million American households are expected to do it this year. But reneging on debt remains a rarity among U.S. state and municipal governments ?
?This is because Chapter 9 of the bankruptcy code, the one that applies to local governments, is so unwieldy. ? There is no obvious mechanism for state and local governments to resolve the coming collision between competing claims of taxpayers, retirees (both current and future) and bondholders.??

? David Wessel, The Wall Street Journal, Sept. 23, 2010

David Wessel is wrong. We New Jersey taxpayers can easily rid ourselves of the oppressive and unsustainable debts and pension obligations that are killing our economy. We just have to apply our state constitution.

Article 8, Section 2 of the New Jersey Constitution says state government cannot go more than $3 billion into debt without voter approval.

That section became part of our state constitution in 1844 after corrupt and incompetent politicians here and around the country caused massive bank failures known as The Panic of 1837 ? and the nation?s worst economic depression.

Back in the 1820s and 1830s, politicians got votes and campaign cash by spending lavishly on new roads, bridges and canals. It was a time of pay-to-play politics and ?public-private partnerships.? Most projects were way too expensive because they were built by the worst companies that gave the best bribes and kickbacks. Others failed because there was no market for them in the first place. But most voters were OK with all this. Politicians kept taxes low by borrowing all the money. The projects would collect high tolls that would repay the loans.

But too few people used the new projects or paid the tolls. The loans were never paid, and the banks that advanced the money failed. People who had deposited their life savings in those banks lost everything.

In 1844, angry ?tea party? voters changed our state constitution. State government could no longer borrow large sums of money without voter approval. Other reforms required all laws and taxes to be equally applied to everyone. This way politicians could no longer offer special deals in return for payoffs and political support.

For the next hundred years, the liberty of our new 1844 constitution brought prosperity to New Jersey. Investors, inventors and entrepreneurs of every kind, including light bulb inventor Thomas Edison, thrived on low taxes and equal treatment by government. It was then that Atlantic City grew from an empty sandbar to a world-famous resort in 50 short years.

But starting in the 1960s New Jersey politicians put judges on the Supreme Court who ruled that although state government itself could not borrow money without voter approval, state government could create ?independent? state authorities like the Economic Development Authority and Sports Exposition Authority, and let them borrow money.

In the 1980s state politicians began to adopt pension laws that promised to pay state, county and local employees huge pensions in the future, while only setting aside enough money to pay 28 percent of what was promised.

As in the 1820s and 1830s, politicians bought votes and campaign cash with money to be paid by future taxpayers who would never benefit from these deals.

New Jersey voters approved roughly $3 billion of debt, mostly for Green Acres and open space purchases. But New Jersey voters never approved $178 billion for unfunded pensions, $68 billion for retired public employee health care or $36 billion borrowed by independent authorities.

We can fix this without bankruptcy. Our state Supreme Court ruled many times that the state only made ?moral? promises to pay these debts and pensions. Debts and obligations incurred without voter approval are not legally enforceable. The bond or loan documents themselves all clearly state that the loans are not backed by the full faith and credit of the state.

Is there a moral obligation to pay these debts? What is moral about rewarding people who tried to profit by undermining our state constitution? If I were in the state Senate or Assembly, I would refuse to pay any debts or obligations not approved by voters. And I would not ask for voter approval until creditors and public employees with bloated pensions first agree to substantial reductions.

This should be the key tea party issue in the New Jersey primary elections next June.

Somers Point attorney Seth Grossman appears live on WVLT-92.1FM, heard throughout South Jersey 8-9 a.m. every Saturday. For information see, email or call (609) 927-7333. Breakfast discussions are held 9:30-10:30 a.m. every Saturday at the Shore Diner, Tilton and Fire roads, Egg Harbor Township.

  • Seth Grossman

    Seth Grossman is executive director of Liberty And Prosperity, which he co-founded in 2003. It promotes American liberty and limited constitutional government through weekly radio and in-person discussions, its website, email newsletters and various events. Seth Grossman is also a general practice lawyer.

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