Christie: 'It's time to make the tough decisions, and default is not the tough decision'
Gov. Chris Christie takes questions during a town hall meeting Monday in Chesilhurst.TRENTON — Gov. Chris Christie isn’t looking to declare New Jersey bankrupt to escape billions in debt even as Washington weighs allowing that option to rescue fiscally challenged states.
"I don’t think we’re at that stage yet," Christie said on Bloomberg TV today. "I think it’s an idea that is out on the table. We need, as elected governors, to take responsibility for what’s going on in our states."
If states could declare bankruptcy, union contracts could be voided or renegotiated and pension benefits reduced without facing lawsuits, saving states millions of dollars.
But experts caution letting states out of hefty obligations, like New Jersey’s $54 billion unfunded pension, could make it impossible to borrow on Wall Street as Christie has proposed doing for transportation projects.
Under federal law, only municipalities, companies and individuals can seek federal bankruptcy protection, but Sen. Mark Steven Kirk (R-Ill.) is considering a measure to expand that to states to prevent them from seeking federal handouts.
Christie today also said his office is working with municipalities to keep them solvent.
But his office said no towns are currently in danger of entering bankruptcy.
"The financial rules and regulations that the state established many, many years ago prevent the kind of bankruptcies which occurred in the public sector back in the days of the Great Depression," said Bill Dressel, executive director of New Jersey League of Municipalities, who added that several towns are working with the state on recovery plans.
The bipartisan National Governors Association opposes bankruptcy protection for states, saying that even considering bankruptcy could make it hard for states to borrow money.
"Declaring bankruptcy would have a big impact not only on the residents of the state but on the financing of the state, on the selling of bonds, on the budget process," said former Delaware Gov. Pete du Pont, who in 1977 declared Delaware "bankrupt," figuratively, and watched its bond rating plummet the next day.
Lawyer Leon Barson, of Pepper Hamilton in Philadelphia who specializes in municipal bankruptcies, said California, Illinois and New Jersey stand to benefit the most from a state bankruptcy because of their debt. The benefits for entering bankruptcy might outweigh any change to state’s ability to borrow, he said.
But Michael Mann, a lawyer with the firm’s Princeton office, said while Christie could use the threat of bankruptcy to get union concessions, the state could suffer more if it actually sought protection.
"It would create what we’re trying to resolve, the ability to raise money and take care of debts," Mann said.
Regardless of what Congress does, Christie said he will continue working to rein in spending on his own.
"It’s time to make the tough decisions, and default is not the tough decision," he said.
Kil Huh, managing director of the Pew Center on the States, said states are taking steps to resolve pension problems: "Before this current period, states would kick the can down the road."
Last year, 19 states enacted reforms that increased employee contributions to pension funds, Huh said. Christie has also proposed increasing employee contributions.
Megan DeMarco contributed to this report.