State and local governments going broke

The controller of Harrisburg, Pennsylvania's capital city, says "Bankruptcy is inevitable." Chapter 9 was put into the bankruptcy code in 1934 and gives municipalities protection from creditors while developing a plan to pay off debts.

"We can't raise taxes; they're already very high," Controller Miller says. "If we did, people would just leave. It's cheaper to move out to the suburbs."

The burden of paying union contracts prompted Vallejo, Calif., to file Chapter 9 in 2008 and the city has not yet emerged from bankruptcy.

In a related story, the WSJ reports that virtually all state retirement plans are underfunded.

While union membership has fallen in the private sector, many government employees work under union contracts. Combine that with the ability of union support to sway election results (and have union government employees serving in legislatures) at the state and local level and it's a recipe for fiscal disaster.

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