Why California will not Declare Bankruptcy

From Fortune:

California has to choose a way to erase its $24 billion budget deficit. But unlike recent examples in corporate America, default and bankruptcy can’t be on the table. Stiffing state bondholders would only destroy the state’s fragile credit and intensify future budget trouble. The Golden State’s only real option is to make big cuts now and balance its books.

Some residents have proposed that the state should declare bankruptcy a la General Motors (GMGMQ), allowing it to cut fat more easily. But there’s no bankruptcy protection available for states. Chapter 11 is for companies, and the more relevant Chapter 9 is only for municipalities and other sub-state entities.

With all the cuts that have already happened, California is still one of the highest taxed states one could live in. Now with all the budget cuts, we will be a state with the lowest benefit levels. How can the 8th largest economy in the world survive like this? I keep thinking, after the government is cut back with budget cuts, we will look like a small government state. This is ironic because the population has more democrats than republicans.

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12 Responses to “Why California will not Declare Bankruptcy”


  1. 1 Carolyne Abrams June 17, 2009 at 7:51 PM

    The people of our country are learning from our parents, the government. The standards of living that the people in our country expect as well as the government is trying to provide, is unobtainable to keep a country in financial stability.

    The situation that California is in is not solely based on the economy and the recession we are in. We have been fighting the inevitable and this has just made it come to a screeching halt. The government (as well as US citizens) have been spending above and beyond our income which has continuously put everyone into deeper and deeper of debt.

    It is easy to live large and support government programs or purchase the designer jeans if it is on borrowed money. Tack it to the end of the laundry list that no one seemed to mind, until we are in trouble.

    Although I realize that this is an extremely difficult time in our country, as well as the rest of the world, I am also somewhat thankful that it has happened now. I can’t imagine raising children in the monsterous society we have created. Happiness is based on tangible things and success proven with the $60 car parked in your 3 car garage. It is quite humbling to realize that our strong country is so easy to break. To view just how greed we have become within the last 20 years, visit the link below.

    http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp.html

  2. 2 Jennifer Meyers Richardson June 23, 2009 at 11:29 AM

    It’s inevitable that our economy would be put in this state. The more and more we are allowed to go into “debt” the worse things will get, just look at all my credit card statements. Spending, spending, and spending is all we know and is a part of our culture unfortunately. Other countries don’t take things for granted as much as we do and it makes me wonder is freedom the principle of our downfall? We practically don’t even own our own country. We owe so much to everyone else, including ourselves. While projects are being built such as the train going from northern to southern california, we are having budget cuts in the wrong areas such as education and health care. It’s really sad how we are so consumer based and not at all conscious about the world and what it has to offer.

  3. 3 Jessie Maguire June 25, 2009 at 5:44 PM

    As citizens of California and the United States we have a responsibility to know and understand the basics behind how our economy is run and how it is working. Over the past year I have noticed that people are content not knowing what is happening in the economy, and this is concerning. We as a society have this idea in our heads that money grows on trees and that we can spend as much as we want without consequence. Now, thanks to spending in the wrong areas funding is being cut in the areas that need it most. Education, something that should be a priority is falling behind. How can one expect to have smarter generations if the schools cannot afford books? It is time for people to become more aware of what is going on around them.

  4. 4 Amanda Smith June 27, 2009 at 2:00 PM

    One thing about being the 8th largest economy in the world is that we think we can do whatever we want and that our money will never run out. We have become accustomed to spending money we dont have on pointless things we dont need! The way I see it, if we cant learn to control our spending and each give up some things for the better of our state, then there is no point for these big cuts they keep enforcing. Because whenever California cuts some companie’s budget or certain groups are given less money, they whine and complain about it. We all need to make sacrifices, or California will have no choice but to declare bankruptcy. We all have to work together on this, and not expect the government to magically make things better without us having to suffer at least a little bit. I mean, it’s partly our fault too!

  5. 5 Wen-Li Chan June 30, 2009 at 7:51 PM

    This message really makes me upset. I think the source of this problem is politicians or law makers were not smart enough about their decisions in terms of how to spend the tax payer’s money. I pay 30% of what I earn and the state still doesn’t have money. It is sad that they have to make lots of big cuts, but I think this would be a good lesson for the law makers and politicians to learn.

  6. 6 Tanisha/ Econ 100 July 9, 2009 at 12:15 PM

    I think that the state and politicians are going to do what they want to do. They can’t be trusted. And you see where they have gotten us thus far. Why are we cutting programs that we NEED? How could we let out budget deficit get this far out of hand? As far as I’m concerned we need new leaders. And what would bankruptcy do for us? We’ve been making “cuts” and our books still don’t balance. I say we get rid of Arnold.

  7. 7 Kit t Kat July 24, 2009 at 5:44 PM

    The real solution may be big budget cuts. Of course many are oppose to that because that means less jobs, smaller pay, less money to the poor and less help from the state through its programs. But in the real world if someone had more expenses than revenues they would have to cut out a lot of things; that may make them sad. However, if they wanted to get their financices in order, they would have to. In the short run it hurts, but it may be worth it in the long run. No one likes the stress of having debit in their lives.

  8. 8 wongt August 5, 2009 at 9:41 AM

    I am glad this happened now than later because it is long overdue for them to take this thing seriously and start cutting and balancing the books. Everyone is helping to pitch in for all the mistakes the politicians made. I work for the state and they already approved furloughs to keep most of the state workers employed.

  9. 9 E. Speizer August 5, 2009 at 9:47 PM

    Considering that our state is in such bad shape economically and our politicians can’t seem to figure out a way to get us out of it, I think it’s time we at least think about legalizing marijuana and having the government tax it. The marijuana trade is a billion dollar industry, and taxing it would create a ton of revenue to decrease our debt.

  10. 10 Patrick Powers August 6, 2009 at 3:13 PM

    A problem for California is its population. California’s total population is just under 37 million today, and it just keeps increasing with tourism and immigration. What it needs to do is try to prevent people from moving here or maybe divide California into two states perhaps. We keep thinking that if we build more houses, then more people will come and help us financially by buying products and giving money back to the states economy. But instead, the more people that come, the harder it is to give in demand to everyone’s needs as it can’t satisfy everyone. Also the idea of splitting up the state into two, might help distribute the different people into states with similar ideas they would want, but in the end this would take a lot of money to do as well.

  11. 11 Maricar De Los Reyes August 6, 2009 at 5:14 PM

    I never really thought about splitting California in two. You’ve already got the “Nor Cal and So Cal” terms, and maybe the concept would work. I don’t know. But, that would cost quite a lot. And would it really be good to separate the state like that? I am vehemently against the education cuts and health cuts. Those are two of the most important things, and California has had to cut them. Couldn’t they have cut from elsewhere, like all the money given to prisoners. Its amazing how much money is given to state prisons, while money for education is cut tremendously. What does that say about where the priorities are?

  12. 12 Hyo Kim May 10, 2010 at 8:30 AM

    Yes, it is true that everything in California feels like cost way more than before. In these days, I feel like police are eager to catch someone who makes mistakes, and this type of atmosphere gives me only bad images of the government in California. Yes, they are struggling with the debt, but do they have to charge more than 450$ for just wrong turn on the street?


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