Courtesy of Mish.
There is no provision for state bankruptcies under Chapter 9 law.
Instead, the governor of Puerto Rico, Ricardo Rosselló, petitioned for relief under Title III of a new federal law for insolvent territorial governments, called Promesa.
States like Illinois sure could use a similar deal.
DealBook reports Puerto Rico Declares a Form of Bankruptcy.
Puerto Rico’s leadership moved on Wednesday to place the island’s debt crisis into federal bankruptcy court, making it the largest United States government entity to seek court refuge from its creditors in American history.
The move sends Puerto Rico into uncharted territory. America’s recent spate of municipal bankruptcies has involved various state and federal laws, but Puerto Rico is not a state, so none of that hard-won precedent will apply. The outcome of its case could help determine where and how the deep financial troubles of certain states, such as Illinois, are resolved.
Puerto Rico has roughly $120 billion of bond debt and unfunded pension obligations to restructure, which dwarfs the second-largest similar episode. When Detroit went bankrupt in 2013, it set the previous record, with about $18 billion of bond debt and retirement obligations.
Under the Promesa law, the next step will be for the Chief Justice of the Supreme Court, John G. Roberts Jr., to designate a bankruptcy judge to handle the case.
The governor’s fiscal plan also calls for shifting all current government workers from pensions into 401(k)-style retirement plans. Current retirees will continue to receive their traditional monthly pensions, but the amounts are to be reduced by about 10 percent on average, with the smallest pensions getting the smallest cuts.
Exactly What Illinois Needs
The Chicago public school system is bankrupt in all but name. So are Illinois pension plans in general, and so are numerous cities that cannot repair their books because Illinois is a state that does not allow municipal bankruptcies.
Instead, public unions and public pensions demand higher and higher taxes which does nothing but drive businesses and individuals who are able to move out of the state.
Still No Budget
