OT: Estimated state budget deficit reaches $25.4 billion

[Anonymous]

[quote=no_such_reality]The more likely scenario, and hopeful scenario, is that California defaults on a bond payment.[/quote]

CA cannot default on bond payments until they stop paying for everything else. It’s in the state constitution. The legislature and Governor don’t have a choice: They cut the interest checks first.

I think that the chance that interest payable during any year could exceed tax revenues is close to zero. The state is not *that* broke.

How much is left for everything else (payroll, welfare, and whatever) is the real question.

[no_such_reality]

[quote=pri_dk][quote=no_such_reality]The more likely scenario, and hopeful scenario, is that California defaults on a bond payment.[/quote]

CA cannot default on bond payments until they stop paying for everything else. It’s in the state constitution. The legislature and Governor don’t have a choice: They cut the interest checks first.

I think that the chance that interest payable during any year could exceed tax revenues is close to zero. The state is not *that* broke.

How much is left for everything else (payroll, welfare, and whatever) is the real question.[/quote]

Sorry pri_dk, my understanding was the same as yours in a previous post “The state constitution requires that schools get get priority followed by general-obligation bondholders. ”

So essentially, ground zero comes when Education and the bond holders cannot be made whole without non-trivial cuts to Education. Also, the bond holders will get nervous on future bonds when it becomes clear that there a fundamental structural problem that cannot be address. The solution to make them whole involves taxes which in turn shrinks the pie.

[no_such_reality]

[quote=pri_dk][quote=no_such_reality]The more likely scenario, and hopeful scenario, is that California defaults on a bond payment.[/quote]

CA cannot default on bond payments until they stop paying for everything else. It’s in the state constitution. The legislature and Governor don’t have a choice: They cut the interest checks first.

I think that the chance that interest payable during any year could exceed tax revenues is close to zero. The state is not *that* broke.

How much is left for everything else (payroll, welfare, and whatever) is the real question.[/quote]

Sorry pri_dk, my understanding was the same as yours in a previous post “The state constitution requires that schools get get priority followed by general-obligation bondholders. ”

So essentially, ground zero comes when Education and the bond holders cannot be made whole without non-trivial cuts to Education. Also, the bond holders will get nervous on future bonds when it becomes clear that there a fundamental structural problem that cannot be address. The solution to make them whole involves taxes which in turn shrinks the pie.

[no_such_reality]

[quote=pri_dk][quote=no_such_reality]The more likely scenario, and hopeful scenario, is that California defaults on a bond payment.[/quote]

CA cannot default on bond payments until they stop paying for everything else. It’s in the state constitution. The legislature and Governor don’t have a choice: They cut the interest checks first.

I think that the chance that interest payable during any year could exceed tax revenues is close to zero. The state is not *that* broke.

How much is left for everything else (payroll, welfare, and whatever) is the real question.[/quote]

Sorry pri_dk, my understanding was the same as yours in a previous post “The state constitution requires that schools get get priority followed by general-obligation bondholders. ”

So essentially, ground zero comes when Education and the bond holders cannot be made whole without non-trivial cuts to Education. Also, the bond holders will get nervous on future bonds when it becomes clear that there a fundamental structural problem that cannot be address. The solution to make them whole involves taxes which in turn shrinks the pie.

[no_such_reality]

[quote=pri_dk][quote=no_such_reality]The more likely scenario, and hopeful scenario, is that California defaults on a bond payment.[/quote]

CA cannot default on bond payments until they stop paying for everything else. It’s in the state constitution. The legislature and Governor don’t have a choice: They cut the interest checks first.

I think that the chance that interest payable during any year could exceed tax revenues is close to zero. The state is not *that* broke.

How much is left for everything else (payroll, welfare, and whatever) is the real question.[/quote]

Sorry pri_dk, my understanding was the same as yours in a previous post “The state constitution requires that schools get get priority followed by general-obligation bondholders. ”

So essentially, ground zero comes when Education and the bond holders cannot be made whole without non-trivial cuts to Education. Also, the bond holders will get nervous on future bonds when it becomes clear that there a fundamental structural problem that cannot be address. The solution to make them whole involves taxes which in turn shrinks the pie.

[no_such_reality]

[quote=pri_dk][quote=no_such_reality]The more likely scenario, and hopeful scenario, is that California defaults on a bond payment.[/quote]

CA cannot default on bond payments until they stop paying for everything else. It’s in the state constitution. The legislature and Governor don’t have a choice: They cut the interest checks first.

I think that the chance that interest payable during any year could exceed tax revenues is close to zero. The state is not *that* broke.

How much is left for everything else (payroll, welfare, and whatever) is the real question.[/quote]

Sorry pri_dk, my understanding was the same as yours in a previous post “The state constitution requires that schools get get priority followed by general-obligation bondholders. ”

So essentially, ground zero comes when Education and the bond holders cannot be made whole without non-trivial cuts to Education. Also, the bond holders will get nervous on future bonds when it becomes clear that there a fundamental structural problem that cannot be address. The solution to make them whole involves taxes which in turn shrinks the pie.

[SK in CV]

[quote=LuckyInOC]A little more cut & paste…

PLAN INFORMATION
The plan administered by CalPERS is a “governmental plan” as defined in section 414(d) of the Internal Revenue Code of 1986, and is not subject to the provisions of section 414(p) of the Internal Revenue Code and section 206(d) of ERISA which govern “qualified domestic relations orders.” The terms of the plan are set forth in the California Public Employees’ Retirement Law (“PERL”), which can be found at section 20000, et seq., of the California Government Code.

https://www.calpers.ca.gov/mss-publication/pdf/xZqTtb8H0u1eP_cp_model_order_package_042808%20(2).pdf

I would think that California could declare bankruptcy in regards to pensions and bonds under Chapter 9.

This should do it… Game, Set, Match…

Lucky In OC[/quote]

Just out of curiosity, how the hell do retirement plan rules related to QDRO’s, definitively decide that a state can declare bankruptcy? I see no connection. California is not getting divorced. (The question is still up in the air whether gays can marry. I don’t think there’s any question as to whether or not states can marry.) Beyond that, California is not a participant in the plan. CalPers isn’t going bankrupt any time soon. And if it did, the state would not be a creditor, but rather a debtor to the plan.

(as an aside, i think the stronger evidence is on the side of a state not having any rights under federal bankruptcy laws, the stronger evidence is on the side of the receivership plan. Best of my knowledge, neither has ever happened, so it’s very possible neither is exactly the way it would actually play out.)

[SK in CV]

[quote=LuckyInOC]A little more cut & paste…

PLAN INFORMATION
The plan administered by CalPERS is a “governmental plan” as defined in section 414(d) of the Internal Revenue Code of 1986, and is not subject to the provisions of section 414(p) of the Internal Revenue Code and section 206(d) of ERISA which govern “qualified domestic relations orders.” The terms of the plan are set forth in the California Public Employees’ Retirement Law (“PERL”), which can be found at section 20000, et seq., of the California Government Code.

https://www.calpers.ca.gov/mss-publication/pdf/xZqTtb8H0u1eP_cp_model_order_package_042808%20(2).pdf

I would think that California could declare bankruptcy in regards to pensions and bonds under Chapter 9.

This should do it… Game, Set, Match…

Lucky In OC[/quote]

Just out of curiosity, how the hell do retirement plan rules related to QDRO’s, definitively decide that a state can declare bankruptcy? I see no connection. California is not getting divorced. (The question is still up in the air whether gays can marry. I don’t think there’s any question as to whether or not states can marry.) Beyond that, California is not a participant in the plan. CalPers isn’t going bankrupt any time soon. And if it did, the state would not be a creditor, but rather a debtor to the plan.

(as an aside, i think the stronger evidence is on the side of a state not having any rights under federal bankruptcy laws, the stronger evidence is on the side of the receivership plan. Best of my knowledge, neither has ever happened, so it’s very possible neither is exactly the way it would actually play out.)

[SK in CV]

[quote=LuckyInOC]A little more cut & paste…

PLAN INFORMATION
The plan administered by CalPERS is a “governmental plan” as defined in section 414(d) of the Internal Revenue Code of 1986, and is not subject to the provisions of section 414(p) of the Internal Revenue Code and section 206(d) of ERISA which govern “qualified domestic relations orders.” The terms of the plan are set forth in the California Public Employees’ Retirement Law (“PERL”), which can be found at section 20000, et seq., of the California Government Code.

https://www.calpers.ca.gov/mss-publication/pdf/xZqTtb8H0u1eP_cp_model_order_package_042808%20(2).pdf

I would think that California could declare bankruptcy in regards to pensions and bonds under Chapter 9.

This should do it… Game, Set, Match…

Lucky In OC[/quote]

Just out of curiosity, how the hell do retirement plan rules related to QDRO’s, definitively decide that a state can declare bankruptcy? I see no connection. California is not getting divorced. (The question is still up in the air whether gays can marry. I don’t think there’s any question as to whether or not states can marry.) Beyond that, California is not a participant in the plan. CalPers isn’t going bankrupt any time soon. And if it did, the state would not be a creditor, but rather a debtor to the plan.

(as an aside, i think the stronger evidence is on the side of a state not having any rights under federal bankruptcy laws, the stronger evidence is on the side of the receivership plan. Best of my knowledge, neither has ever happened, so it’s very possible neither is exactly the way it would actually play out.)

[SK in CV]

[quote=LuckyInOC]A little more cut & paste…

PLAN INFORMATION
The plan administered by CalPERS is a “governmental plan” as defined in section 414(d) of the Internal Revenue Code of 1986, and is not subject to the provisions of section 414(p) of the Internal Revenue Code and section 206(d) of ERISA which govern “qualified domestic relations orders.” The terms of the plan are set forth in the California Public Employees’ Retirement Law (“PERL”), which can be found at section 20000, et seq., of the California Government Code.

https://www.calpers.ca.gov/mss-publication/pdf/xZqTtb8H0u1eP_cp_model_order_package_042808%20(2).pdf

I would think that California could declare bankruptcy in regards to pensions and bonds under Chapter 9.

This should do it… Game, Set, Match…

Lucky In OC[/quote]

Just out of curiosity, how the hell do retirement plan rules related to QDRO’s, definitively decide that a state can declare bankruptcy? I see no connection. California is not getting divorced. (The question is still up in the air whether gays can marry. I don’t think there’s any question as to whether or not states can marry.) Beyond that, California is not a participant in the plan. CalPers isn’t going bankrupt any time soon. And if it did, the state would not be a creditor, but rather a debtor to the plan.

(as an aside, i think the stronger evidence is on the side of a state not having any rights under federal bankruptcy laws, the stronger evidence is on the side of the receivership plan. Best of my knowledge, neither has ever happened, so it’s very possible neither is exactly the way it would actually play out.)

[SK in CV]

[quote=LuckyInOC]A little more cut & paste…

PLAN INFORMATION
The plan administered by CalPERS is a “governmental plan” as defined in section 414(d) of the Internal Revenue Code of 1986, and is not subject to the provisions of section 414(p) of the Internal Revenue Code and section 206(d) of ERISA which govern “qualified domestic relations orders.” The terms of the plan are set forth in the California Public Employees’ Retirement Law (“PERL”), which can be found at section 20000, et seq., of the California Government Code.

https://www.calpers.ca.gov/mss-publication/pdf/xZqTtb8H0u1eP_cp_model_order_package_042808%20(2).pdf

I would think that California could declare bankruptcy in regards to pensions and bonds under Chapter 9.

This should do it… Game, Set, Match…

Lucky In OC[/quote]

Just out of curiosity, how the hell do retirement plan rules related to QDRO’s, definitively decide that a state can declare bankruptcy? I see no connection. California is not getting divorced. (The question is still up in the air whether gays can marry. I don’t think there’s any question as to whether or not states can marry.) Beyond that, California is not a participant in the plan. CalPers isn’t going bankrupt any time soon. And if it did, the state would not be a creditor, but rather a debtor to the plan.

(as an aside, i think the stronger evidence is on the side of a state not having any rights under federal bankruptcy laws, the stronger evidence is on the side of the receivership plan. Best of my knowledge, neither has ever happened, so it’s very possible neither is exactly the way it would actually play out.)

[CA renter]

[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.

http://www.californiabondadvisor.com/Controller0310.htm

…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.

[CA renter]

[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.

http://www.californiabondadvisor.com/Controller0310.htm

…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.

[CA renter]

[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.

http://www.californiabondadvisor.com/Controller0310.htm

…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.

[CA renter]

[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.

http://www.californiabondadvisor.com/Controller0310.htm

…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.

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