<p>I love the place to death, but it does seem that CA is brain-dead when it comes to finances. Would bankruptsy really help? Here’s a columnist (and long-time resident) who thinks so.</p>
<p>[John</a> Dvorak’s Second Opinion: California needs to face the music, go bankrupt - MarketWatch](<a href=“http://www.marketwatch.com/story/california-must-go-bankrupt-2009-09-18]John”>California must go bankrupt - MarketWatch)</p>
<p>John Dvorak? Is he still curmudgeoning illogically? </p>
<p>Bankruptcy would be crushing - and I’m not sure it’s even a constitutionally permissible option in CA. One example: they rely on bond markets to raise funds. Try doing that if you default and write down or erase your debts.</p>
<p>It is time for CA to get real, but probably not via bankruptcy. Getting rid of prop 13 would be a first step and changing the tax structure to stop chasing business out of the state another good one.</p>
<p>The state has truly been in lalaland for far too long.</p>
<p>It’s interesting to compare MA and CA - both liberal coastal states with high unemployment, great schools of higher education and both with very important high-tech economies. I’d say that both have significant political corruption issues.</p>
<p>MA has cut services and raised taxes and it’s painful but it was done. California seems to have a much tougher time doing these things.</p>
<p>What I expect is money printing to try to erase the debt. I expect additional stimulus programs to deal with state budget issues. I don’t expect bankruptcy.</p>
<p>I would love to see California in bankruptcy. A bankruptcy administrator would be able to make tough decisions political leaders cannot make without losing their legacies, egos, and jobs. California provides too many free services and does not tax enough people. It a matter of numbers.</p>
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<p>While that would be wonderful to see, I can’t see it working out in the real world.</p>
<p>I recall several high-profile corporate bankruptcies and I recall that law firms made out like bandits billing at very high rates, calling in fancy consultants, loading up their teams with junior members billing at high rates and shareholders going nuts over expenses. What makes you think that a bankruptcy administrator and the army that would have to be hired to work for him wouldn’t have his own human problems?</p>
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<p>I am sure they would have problems, but they would have court supervision. A court has to approve those expenses and a good judge would not allow excess.</p>
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<p>The judges approved excess in Enron and WorldCom and other cases. What would be different with a state BK?</p>
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<p>Totally agree.</p>
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You’re confusing the Franchise Tax Board with the Federal Reserve’s Fractional Reserve System.</p>
<p>No administrator is perfect any more than any judge is perfect, but it is a matter of degree. What ever excess there is by an administrator would be nothing compared to the existing excess of political leaders in California.</p>
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<p>Money printing, outside local notes and currencies, is the domain of the Treasury and Federal Reserve. What I meant was the general process of inflation such that debts become trivial to service.</p>
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<p>I will have to take your word for that as I’m on the other side of the country where corruption issues tend to be local where we can deal with them. Of course the rest of the country is watching as California is so important to the entire country.</p>
<p>California passed by citizen’s initiative a requirement that all new tax legislation pass with a 2/3 majority. That means they can’t balance the budget except by raising certain fees that aren’t covered by that requirement, spending cuts and accounting re-allocations (such as moving pay dates). State workers have largely been on 4 paid day weeks, meaning they’ve taken roughly a 20% cut in pay - not exactly because the effect on benefits is less blunt. California’s governance problems are a direct result of - get the irony - the citizenry’s direct action and not politicians’ choices. </p>
<p>A city can file for bankruptcy because the law allows municipalities to do so, largely on the theory that they’re municipal corporations and thus are corporate persons in a legal sense. States are not corporations and have no legal right that I’ve heard of to file for bankruptcy. California also requires that a balanced budget be filed - not necessarily enacted, but that’s a different issue. That is a main reason why the state has this crisis; it can’t issue general revenue bonds, meaning to cover deficits, without voter approval and must balance a budget, subject to certain during the year revisions and some other stuff. We thus have the 8th largest economy in the world unable to run a deficit.</p>
<p>The idea that California should or could declare bankruptcy is off the wall, nearly impossible in fact and would only make sense if the governance and budget issues were addressed and then the state failed (which wouldn’t happen).</p>
<p>"California’s governance problems are a direct result of - get the irony - the citizenry’s direct action and not politicians’ choices. "</p>
<p>^ Thank you for your assessment. Given that it may take several years for California’s economy to recover to 2008 levels, what options are available to close next year’s budget gap?</p>
<p>It’s my understanding that legally California cannot file for protection under bankruptcy court. Thus, the issue is moot.</p>
<p>I think right now CA is hoping their economy improves and the decline in tax revenues will reverse. If things continue, meaning further decline or even a mere leveling off, they’ll have big problems again - and more localities may be facing bankruptcy. </p>
<p>It will be interesting since the GOP represents a number of the worst hit areas - Inland Empire, etc. - and they’ve been pushing for service cuts and have refused to vote for tax increases. How will their electorate view things?</p>
<p>It seems to me that California was very dependent on bubble economics to grow. They do have significant real economies (high-tech, agriculture, shipping, etc.) that should bounce back with the economy and the rest of the country but financial experts that I read say that the recovery will be slow. It seems to me that compensating for the loss of the bubble will be very, very difficult as there was so much infrastructure built up to support it.</p>
<p>What we really need is another bubble.</p>
<p>I’m hoping that there will be a reset button for California with a constitutional convention which relooks the whole spending and initiative process. So many of the problems are caused by well intended voters locking in spending to specific programs, tying the hands of the politicians.</p>
<p>California has way too few people producing (paying taxes) and way too many consuming from the public fisc. </p>
<p>This is a recipe for disaster. </p>
<p>California must find a way to lean government - very lean. </p>
<p>And they must find a way to grapple with their demographic challenges. With one of the nation’s worst educational systems in K-12, they are producing far too many with limited education in a global knowledge based economy. Some of this is due to massive illegal immigration, but some is due to a culture of entitlement that has seem to have gripped large areas of the state.</p>
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<p>They spend a very high percentage of their state budget on education. It seems strange that they have the nation’s worst system. What’s their average cost per student?</p>