If that doesn't happen, it's default time. [should we trademark "Default line"? -ed] Remember, there is no provision in the bankruptcy code that affords relief to a state. Expect to learn new terms, starting with "Writ of Mandamus".
From the Los Angeles Times:
California voters kill budget measures
Reporting from Sacramento -- The "big five" elected leaders -- Schwarzenegger and the legislative chieftains from both houses -- are slated to begin closed-door meetings today upon the governor's return from Washington, where he spent election day after casting a last-minute absentee ballot....From the San Francisco Chronicle:
...The governor also wants to borrow up to $6 billion, but awaits word on whether Washington would guarantee those loans. The White House has never done so for the state but is considering the action as Wall Street expresses concern that California could become a deadbeat borrower.
In a bid to salt those prospects, Schwarzenegger met privately Tuesday in the U.S. Capitol with members of California's congressional delegation. "We have a major problem in California, and I think if we work together, we can make it through this crisis," he told reporters after attending the White House announcement on tougher vehicle emission standards. "We need assistance. . . . I didn't come for any bailout....MORE
Is California Too Big to Fail?
So what about California? A reader asks. Ummm, that's a tough one. No, wait, it's not: California is completely, totally, irreparably hosed. And not a little garden hose. More like this. Their outflow is bigger than their inflow. You can blame Republicans who won't pass a budget, or Democrats who spend every single cent of tax money that comes in during the booms, borrow some more, and then act all surprised when revenues, in a totally unprecedented, inexplicable, and unforeseaable chain of events, fall during a recession. You can blame the initiative process, and the uneducated voters who try to vote themselves rich by picking their own pockets. Whoever is to blame, the state was bound to go broke one day, and hey, today's that day!From The Economist:
There is a surprisingly sizeable blogger contingent arguing that we have to bail them out because however regrettable the events that lead here, we now have no choice. But actually, we do have a choice: we could let them go bankrupt. And we probably should.
I am not under the illusion that this will be fun. For starters, the rest of you sitting smugly out there in your snug homes, preparing to enjoy the spectacle, should prepare to enjoy the higher taxes you're going to pay as a result. Your states and municipalities will pay higher interest on their bonds if California is allowed to default. Also, the default is going to result in a great deal of personal misery, more than a little of which is going to end up on the books of Federal unemployment insurance and other such programs.
Then there are the actual people involved. Whatever you think of, say, children who decided to be born poor, right now they are dependent on government programs, and will be put in danger if those programs are interrupted.
On the other hand, I don't really see another way out of it. If Uncle Sugar bails out California, California will not fix its problems. Perhaps you want Obama to make it fix the problems, using the same competence, power, and can-do spirit with which he has repaired all the holes in the banking and auto manufacturing sectors. But Obma is not in a good position to do this. California Democrats are a huge part of his governing coalition. All Obama can do is shovel money into the bottomless pit of California's political system....MORE
The ungovernable state
As California ceases to function like a sensible state, a new constitution looks both necessary and likely
...A good outcome is no longer possible. California now has the worst bond rating among the 50 states. Income-tax receipts are coming in far below expectations. On May 11th Arnold Schwarzenegger, the governor, sent a letter to the legislature warning it that, by his latest estimates, the state will face a budget gap of $15.4 billion if the ballot measures pass, $21.3 billion if they fail. Prisoners will have to be released, firefighters fired, and other services cut or eliminated. One way or the other, on May 20th Californians will have to begin discussing how to fix their broken state.
California has a unique combination of features which, individually, are shared by other states but collectively cause dysfunction. These begin with the requirement that any budget pass both houses of the legislature with a two-thirds majority. Two other states, Rhode Island and Arkansas, have such a law. But California, where taxation and budgets are determined separately, also requires two-thirds majorities for any tax increase. Twelve other states demand this. Only California, however, has both requirements.
If its representative democracy functioned well, that might not be so debilitating. But it does not. Only a minority of Californians bother to vote, and those voters tend to be older, whiter and richer than the state’s younger, browner and poorer population, says Steven Hill at the New America Foundation, a think-tank that is analysing the options for reform.
Those voters, moreover, have over time “self-sorted” themselves into highly partisan districts: loony left in Berkeley or Santa Monica, for instance; rabid right in Orange County or parts of the Central Valley. Politicians have done the rest by gerrymandering bizarre boundaries around their supporters. The result is that elections are won during the Republican or Democratic primaries, rather than in run-offs between the two parties. This makes for a state legislature full of mad-eyed extremists in a state that otherwise has surprising numbers of reasonable citizens....MORE