NGA/NCSL Bankruptcy Letter

February 3, 2011 

The Honorable John Boehner
Speaker of the House
U.S. House of Representatives
Washington, D.C. 20515

The Honorable Harry Reid
Majority Leader
United States Senate
Washington, D.C. 20501

The Honorable Nancy Pelosi
Minority Leader
U.S. House of Representatives
Washington, D.C. 20515

The Honorable Mitch McConnell
Minority Leader
United States Senate
Washington, D.C. 20510

Dear Mr. Speaker, Ms. Pelosi, Senator Reid and Senator McConnell: 

The nation's governors and legislators do not support proposals to provide states with bankruptcy protection. 

Allowing states to declare bankruptcy is not an authority any state leader has asked for nor would they likely use.  States are sovereign entities in which the public trust is granted to its elected leaders.  The reported bankruptcy proposals suggest that a bankruptcy court is better able to overcome political differences, restore fiscal stability and manage the finances of a state.  These assertions are false and serve only to threaten the fabric of state and local finance.  

For the last three years, states have faced growing budget deficits and in each of those years, we have closed those deficits by spending cuts and when necessary increasing taxes.  Governors and legislators have had to make tough and politically unfavorable decisions to be fiscally responsible and balance our budgets.  Throughout this process, our colleagues never contemplated walking away from our obligations to our constituents or to the bond markets by requesting that the federal government allow states to receive bankruptcy protection.   While a number of states continue to face budget deficits over the next few years, we will continue to use our sovereign authority to balance our budgets and meet our obligations. 

State and local bonds and fiscal instruments remain some of the safest investments in the world.  State leaders are keenly aware of their responsibility to manage their finances and repay their obligations.   In contrast, the mere discussion of legislation, let alone the existence of a law allowing states to declare bankruptcy would only serve to increase interest rates and create more volatility in bond markets. 

State and local leaders are interested in working with their federal partners to improve the fiscal stability of government at all levels.  We call on Congress and the Administration to work with our members to eliminate unfunded mandates, provide greater flexibility to use federal funds more efficiently and avoid federal restrictions such as maintenance-of-effort provisions that hinder state and local authority to control their own finances. 

These are difficult times in which to govern, but the challenges also provide us with the opportunity to work more closely together to find common solutions.  We look forward to working with you to address the financial needs of the country and ensure our prosperity for the future. 


Governor Christine O. Gregoire
Chair, National Governors Association

Senator Richard T. Moore
Massachusetts Senate
President, National Conference of State Legislatures

Governor Dave Heineman
Vice Chair, National Governors Association

Senator Stephen Morris
Senate President, Kansas
President-Elect, National Conference of State Legislatures