State debt crises are an underappreciated driving force in American constitutional history. This article, which is being published as part of the Duke Journal of Constitutional Law & Public Policy’s symposium on “The Consequences and Constitutional Dilemmas of State Debt,” assesses the financial challenges facing the states, the different ways in which those challenges might be addressed, and constitutional issues that those responses might raise. We consider five different kinds of scenarios:
1. Payment delays and IOUs: States may simply seek to delay repayment of their obligations without attempting to diminish their ultimate liability, or they may resort — as California and Illinois already have — to paying private businesses, local governments, and others with short-term IOUs rather than real money. To the extent that they alter the payment terms of state contracts, these short-term expedients may raise issues under the Contracts and Takings Clauses. But the short time frames involved make litigation unlikely.
2. Alterations to Long-Term Obligations: States in economic distress may decide to alter the terms of long-term agreements with current and former employees to provide pensions and healthcare benefits. Such alterations would raise more substantial Contracts Clause issues, although state sovereign immunity may severely constrain private parties’ remedial options. [...]