Topinka to Congressional Committee: Say ‘no’ to state bankruptcy

Comptroller declares: ‘bankruptcy not the answer’

Chicago, IL – Illinois Comptroller Judy Baar Topinka on Monday sent the attached letter to United States House of Representatives Committee on the Judiciary in advance of its afternoon hearing on state bankruptcy.

Sworn in last month as the state’s Chief Fiscal Officer, Topinka argues that state bankruptcy is “misguided at best” and warns of serious fiscal and economic consequences if it is permitted.

The letter follows:

February 14, 2011

Committee on the Judiciary

United States House of Representatives

c/o Chairman Lamar Smith

2138 Rayburn House Office Building
Washington, DC 20515

Re: State Bankruptcy Hearing

Dear Chairman Smith and members of the Committee on the Judiciary:

It has come to my attention that you will soon hold hearings to learn more about legislative proposals that would allow states to declare bankruptcy. As the Chief Fiscal Officer of a state that is often used as an example in the discussion of this issue, I want to share my thoughts with you and offer to serve as a resource for your committee as you weigh this important question moving forward.

There is no question Illinois faces serious financial challenges – but declaring bankruptcy is not the answer.

While supporters of bankruptcy are no doubt well-intentioned, their proposal to allow states like Illinois to break their financial commitments is misguided at best. State bankruptcy would immediately result in increased borrowing costs, reduced access to financial markets and suspended or downgraded credit ratings. It is irresponsible. In fact,

I fear that the mere discussion of this option runs the risk of destabilizing the bond market.

Beyond those consequences, state bankruptcy threatens to create more financial uncertainty and stunt economic recovery. Residents in our state already face high unemployment, residential foreclosures and other economic difficulties – bankruptcy will only exacerbate their plight. In addition to disrupting the bond market in the short-term, it would stop infrastructure and construction projects that are needed to jump start the economy. In Illinois specifically, it would also further paralyze business recruitment already made more-difficult by the recently-approved corporate tax increase.

Perhaps most important: bankruptcy is simply not the right thing to do. Sadly, my state and others have made irresponsible spending and borrowing decisions that have led to massive deficits. As state leaders, we now have a responsibility to make difficult and unpopular decisions to reduce spending and restore our fiscal integrity. Bankruptcy is little more than an “easy way out,” that would wrongly allow the state to skip out on its financial obligations without correcting the choices that have led to this point.

Thank you for taking the time to consider the consequences of potential state bankruptcy legislation. Please do not hesitate to contact me if I can provide additional information or resources as you proceed in this discussion.

Sincerely,

Judy Baar Topinka

Illinois Comptroller