GOP Excludes Build America Bonds From Tax Plan to Force States Into Bankruptcy to Crush Public Employee Unions

Reuters, Secret GOP Plan: Push States to Declare Bankruptcy and Smash Unions, by James Pethokoukis:

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”

In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year. ...

Some Republicans hope the shock of the newly revealed debt totals will grease the way towards explicitly permitting states to declare bankruptcy. Indeed, legislation amending federal bankruptcy law is currently being prepared by congressional Republicans. Local municipalities do declare bankruptcy from time to time, most famously California’s Orange County in 1994. But states can’t. Allowing them the same ability to renegotiate obligations could enable them to slash public employees’ lavish benefits, a big factor in their financial woes.

• Barron's, Munis Fall As Build America Bonds’ Extension Left Out Of Tax Cuts Plan
• L.A. Times, Muni Bond Market Roiled by Possible End of 'Build America' Program
• Wall Street Journal, Tax-Cut Deal Results in Turmoil for Bonds