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.