California budget woes could lead to default

The California budget for the fiscal year starting in July is $19 billion short and the dire truth is no one has a clue where the money will come from, if indeed it can be found at all. That’s what no one is talking about – not commentators, not politicians, and most especially not even the major candidates for governor. What happens if (or is it ‘when’) California can no longer meet its current obligations and then defaults?

This could easily happen. After all, if you’ve already slashed budgets to the bone and still need billions more, then bankruptcy becomes a distinct possibility. But states can’t file bankruptcy. There is no provision in the law that allows them to do so.

But if California stops paying its bills, then that would effectively be bankruptcy even if not legally recognized as such. It would also be an immense legal and financial black hole that would unquestionably lead to further chaos.

Of the major candidates for governor, Steve Poizner has the most detailed plan for the budget on his website while Meg Whitman dances around it without much substance, and Jerry Brown has nothing, absolutely nothing, about it. But Poizner and Whitman present long range plans to grow the economy without saying anything about how to balance the budget now or how to avoid default.

There’s a sense of unreality from all the candidates. I suggest that things are much more perilous than they are letting on and that perky plans to re-build the economy by cutting taxes and slashing spending don’t deal with the crushing immediate problem – where to get that $19 billion.

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