[quote=pri_dk]Thanks OC, you are clearly an expert and you’ll be the first person I call if I ever need a bankruptcy attorney.
[quote=flu]Yes, yes. I’m familiar with the CURRENT rules regarding only municipalities’ ability to file for the BK…BUT do you folks really believe that rules aren’t going to change?[/quote]
So the federal government will change the laws in order to allow CA to declare bankruptcy?
Anyway, this is just semantics and legal technicalities. The interesting question is the impact on government function when the state simply cannot borrow more money. The state constitution requires that schools get get priority followed by general-obligation bondholders. So the state is very unlikely to default, since it is required to cut just about everything else before skipping an interest payment.
But I do agree that things will be different.
A few years down the road, when there is simply no money to pay the unsustainable pension obligations, the unions will start filing the lawsuits. They will claim that contract law supersedes the state constitution, and that funding should be taken from schools to pay for their posh retirement lifestyles. It won’t be technically be bankruptcy, but it will be a huge legal mess.[/quote]
Will have to double-check, but believe the pensions are #2, behind G.O. bonds.
edit: It does look like education takes precedence over pensions according to this:
But our main concern, this year as last year, is to explain very clearly that the state is not “running out of cash” or “short of cash” when it comes to the funds available for debt service. The constitutionally-mandated financial cushion that carves out top priorities for education and debt service lets investors sleep at night, even if the “headline risk” would suggest otherwise. Understanding this “cushion” is especially important at a time when the state’s credit ratings are at triple-B levels. Some “conservative” investors, if they go by credit ratings alone, will avoid purchasing California’s bonds. That decision carries with it a major trade-off for an income-oriented investor. You are leaving money on the table because the state’s G.O. bonds are paying a hefty premium over what you will receive on higher-rated municipal debt.
…but I have also heard that pension obligations have priority. Will have to do more checking.
Nonetheless, the pensions alone are not the problem. As davelj correctly pointed out, much of our governmental structure is very, very top-heavy. We need to shed the costs there, as well as eliminate all the expenses related to illegal immigration FIRST, before touching the existing pension obligations (please note that I’m NOT saying we shouldn’t look into pension reform, just that we need to eliminate the costs that we should never have taken on in the first place). We can’t really know what we’re working with until we get rid of the fat that is truly unproductive and negatively affects our budget and quality of life in California.
