Could We Restructure PERS Under Bankruptcy Without Affecting Other State Services?

Oregon's Public Employee Retirement System is $22 billion short. Could we restructure PERS under bankruptcy without affecting other state services?
—Curious, Furious Taxpayer

Depends on whom you ask. Some people believe this, or something a lot like it, is the only solution to states' pension liability woes. Others say even talking about it is to invite a financial apocalypse that, overnight, would reduce our once-proud nation to a smoking ruin. (So, if you're reading this from an underground bunker while trying to cook a dead weasel over a tire fire: Oops.)

To be clear: Under current law, the answer to your question is no. U.S. states may not declare bankruptcy.

However (depending on state law), municipalities within a state may file bankruptcy (e.g., Detroit), and recently, there's been speculation that other intrastate entities—like, say, the Chicago Public Schools—might also count as "municipalities" for this purpose.

What's Chicago got to do with it? Well, while we've been fuming at how poorly Oregon is managing her liabilities, most of us haven't noticed that almost every other state has been doing as poorly or worse.

As recently as 2013, Oregon was ranked fifth-best in the nation at handling this problem. We've dropped a few places since then, but we're still well above average. Pity Illinois, whose unfunded liability tops $111 billion, or Connecticut, whose investments need to return 14 percent a year for the next 30 years just to break even.

All told, U.S. states are in hock for somewhere between $1.75 and $5 trillion.

Of course, states' presumed inability to declare bankruptcy is what makes them good credit risks. Once we start whispering about ways to get around that rule, investors get nervous, states' borrowing costs rise, and the whole problem is made even worse. Myself, I'm planning to die before the shit hits the fan, but you kids have fun!