California’s Budget and Cash Flow Crisis

Some interesting information from today’s LAO report on California’s budget crisis. Sometimes I think Gov. Schwarzenegger and the State Legislators want to go bankrupt. If California does, the Federal Government will probably bail them out. That would mean help and political cover for California and it’s politicians:

When Will the State “Run Out of Cash?” Strictly speaking, the state can never run out of cash because tax and other payments flow into state coffers every day. Instead, what may happen in the next few weeks is that available cash may no longer be sufficient to make all state payments that have been appropriated by the Legislature on a timely basis. The state would most likely reach this point—absent any corrective action by the Legislature or the Controller—in late February or early March 2009.

Which Payments Will Be Delayed in the Next Few Weeks? In the weeks before the state’s cash on hand reaches zero, the State Controller must start taking corrective action. Specifically, he must delay payments classified as lower–priority under the law. The Controller must do this to help ensure that the state can keep making payments deemed as higher–priority under the law. The Controller has broad discretion to determine which payments are “priority payments.” The state’s priority payments appear to include many related to schools, debt service, state employee payroll and benefits, and Medi–Cal. Other categories of payments, such as tax refunds, student aid grants, and payments to local governments and vendors, may be delayed in the coming weeks.

Is Bankruptcy an Option for the State? When individuals, companies, and local governments are unable to pay their bills, filing for protection under the U.S. Bankruptcy Code is an option that allows them to renegotiate or restructure their financial obligations. States, however, are believed to be ineligible for bankruptcy protection.


1 Response to “California’s Budget and Cash Flow Crisis”

  1. 1 Credit Crunch » California’s Budget and Cash Flow Crisis Trackback on January 15, 2009 at 5:40 AM

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