Republican U.S. Senate candidate Carly Fiorina suggested that the state of California should consider declaring bankruptcy, apparently unaware that states cannot do that under federal bankruptcy law.
The comments were first reported Tuesday in the Riverside Press-Enterprise. Fiorina, the former head of Hewlett-Packard, hosted a business roundtable at a cement plant in Colton, Calif., and a businessman asked her if the state should consider filing for bankruptcy.
"I think it should always be considered," Fiorina replied. "Whether that is the right approach now, I don't know. I think bankruptcy, as a possibility, at the very least focuses the mind on what has to be done to salvage a situation."
Under federal law, municipalities can declare bankruptcy, as Orange County notably did in 1994. But states do not have the same ability.
Why does federal law apply in the first place? Article I, section 8 of the Constitution empowers Congress to establish "uniform Laws on the subject of Bankruptcies throughout the United States." In Federalist 42, Madison explained:
The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds where the parties or their property may lie or be removed into different States, that the expediency of it seems not likely to be drawn into question.