A California Bankruptcy

Some legal thoughts. I don’t know if it would be constitutional, but I would condition a federal bailout on reversion of the state to territory status, with an opportunity to reenter the union after it gets its fiscal act together, possibly as multiple states. For instance, if some of the eastern and/or northern counties wanted to band together to form a new government independent of Sacramento (or even including Sacramento, but independent of the coastal megalopolises) they could do so and apply for readmission. Alternatively, they might want to apply to be annexed to (say) Nevada, or Oregon.

Same thing for Illinois and New York, though the impetus to break them up would be much less in those cases.

86 thoughts on “A California Bankruptcy”

  1. States have defaulted before, and not just Confederate bonds. The state of Mississippi defaulted on the Union Bank and Planters Bank bonds in the 1840s and even has it written into the state constitution that the bonds will not be paid. If the state defaults, the bond holders simply will not be paid.

  2. There are takers and there are makers. When the makers run out of stuff, the takers rebel, see Great Britain’s student rebellion. The government fails, the police and fire not paid, then riots and havoc prevail. Federal emergency orders will be passed, national guard called out and military law established. All union pensions gone, all governmental staff, including the current government dismissed. Federal judges and bankruptcy courts will rule. The people of California will be dismissed. I worry that in this cultural tsunami, medical, law and fire fighting personnel will be lacking, hence needless death are ensured.

  3. If the opportunity presented itself in the form of a movement, even a very slight one from D.C. way; there and a number of folks, in local city and county governments who would speak up on this issue. I can say that with some assurance having lived in Bakersfield for 12 years in the 90’s.

    Those folks are all hard working farm and ranch and various aspects of the Agri. business. Finally the asinine decision to turn of the water for some dumb fish was the final straw for many business folks in the central valley.
    From the Kern County line north up to Siskiyou & Modoc, and excepting the coastal counties of Sonoma, Napa, Marin, Mendocino, or in other words the counties in around and or abutting San Francisco county could form a state which might be called “Sierra”. Additionally The counties of Santa Barbara, Ventura, L.A. and San Luis Obispo could for the state of Los Angeles. Finally Orange, San Diego Imperial and Riverside could form a state that could become known as Southern California.

    If this were to happen, several wide ranging options for shifting and changing the economic paradigm of what is now a complete mess become available. (note I did not say an upheaval) These changes would have to be handled deftly by the business and political communities for a decade or more and by that “circus” off of highway 95 in the north east, known as D.C..

    The local and county politicians would necessarily have to negotiate and renegotiate an enormous range of agreements, boarders, tax structures, contracts etc. not to mention all the compacts for water, sanitation etc; that are now handled by the state. Merely dividing up the assets of “CalTrans” would take years and intense negotiations, then there are ports, airports etc.

    However a critical economic eye can see a number of counties as reconstituted states becoming in a score of years a driving, thriving economic engine once those counties are freed from the awful patronage system Sacramento has become. Its certainly worth a try? we don’r have much to lose now except more of the hard earned money from the residents of the other 49 states.

  4. We’d only gain from letting states like NY subdivide. UpState NY is over all somewhere to the right of the John Birch Society. Washington State is the same, yet flipped East to West. In NY we’ve been talking about seceding if they’d let us for over 30 years.

  5. I believe that the failure of some of the states, such as California, is, aong other things, fallout from the SCOTUS decisions in Baker v. Carr and Reynolds v. Sims. The former allowed the court to intervene in political questions, such as reapportionment, and the latter forced the upper houses of state legislatures to be districted according to population (instead of, say, counties). As a result, the rural counties no longer acted as a moderating influence in the upper house of the state legislatures.

    P.S. Jefferson was actually bigger than the map a previous poster linked. The
    largest proposal involved 7 counties in Oregon and 12 or 13 in California. http://www.jeffersonstate.com/

  6. As a resident of Kern County, one of the most Republican, rural, and conservative counties in CA, I would be all for seceding or merging with Nevada. Inyo and San Bernardino counties also.

  7. The more probable scenario is that California state government is going to have to be cut in size as already signaled last week by Gov.-elect Jerry Brown. But where the cuts will be made will be mainly in school districts at the local level. About 45% of the $44 billion state school budget is fluff for non-essential jobs and services that will be cut. Where bankruptcies are more likely to occur is at the school district and municipal level.

    Raising or lowering taxes won’t help much – the U.S. is broke as is California. Bureaucracies and regulations need to be simplified and deregulated. The problem is that while local school district and counties and cities may go bankrupt the pension systems for all of these are state-wide (Cal-PERS and Cal-STARS). California is gambling that higher utility rates from green power can bail them out. Look for another energy crisis.

  8. BierceAmbrose:

    Actually Upstate NY is changing – many of those who lived in NYC have moved upstate especially in the areas around the large, well know colleges. It use to be a no brainer taht one could get a pistol permit, but now you have the craziness of NYC happening. True not as bad but getting there. Problem is the same in Hew Hampshire, The people from Mass. moved to southern NH to escape the taxes but still work in Mass and brought their craziness with them. These damn liberal just sread like wildfire 🙁

  9. I still think we should give California to China a payment for the national debt.

    Sure, let’s move chinese nukes into CA mountain bases. Great idea. /sarc

    No decision about CA means it will be resolved one way or another. If the state gets bailed out, we all get taxed by the printing of more money. That should not happen and probably will. We didn’t elect enough tea partiers and don’t know how many of those we did elect actually are.

    I’m just wondering if our crash is going to be slow motion or sudden. Either way, we’re heading for a crash.

  10. Well, things are pretty crazy here in California, but it looks like you guys, instead of jumping the shark, have jumped the moon. Just because we have 4 times as many administrators as we need at every level of government, just because we have 1/3 of all the welfare cases in America, just because our schools have become 12 year day care centers doesn’t mean we have to dissolve the government. What we need is a special prosecutor to look into public corruption, a federal grand jury, and a few key figures to start the plea bargaining process and the rats will start to flee. The bond vigilantes will take care of the rest. Granted that many of our voters are stupid here, but they’re learning.

  11. The solution is for the Bay Area Counties and LA County to secede and form independent metro states on the Singapore model. All other ideas are pipe dreams.

  12. I’m having 2nd thoughts… if CA is kept as is (and falls apart before our eyes), it serves a very valuable purpose as a bellwether for what’s in store for the rest of us, whom are only mildly more frugal, and slightly less inclined to dole out / partake in welfare. We will – perhaps – know we’ve learned the lesson if we can resist the beggars’ demands for bailouts.

  13. Remember that California was a Republican state as recently as 1988.

    What changed? Mexicans moved in, and whites moved out.

    Of all the Hispanic politicians in CA, not a single one is a Republican?

    What has kept CA from being even in much worse shape than it is (it still houses the HQs of the hottest companies in the world, like Cisco, Apple, Google, Facebook, etc.)?

    One word : Asians. That highly productive, low crime group, non-handout-seeking group.

  14. Remember that if CA split into two, Southern California would become a reddish state – a BIG red state about the size of Texas.

    The Bay Area is deep blue, but Silicon Valley is a highly capitalist/meritocratic place. The energy level you see in a Silicon Valley workplace, and the speed at which things happen, blows away any office in the sleepy US interior.

    So why do they vote Democrat? Because Asians are not sufficiently knowledgeable about US politics and believe what they see on TV. They take the TV news at face value, and assume Democrats = their friends and Republicans = Racists/rednecks. The GOP has to do a better job at branding.

  15. You people are talking as if CA is the very worst run state.

    It is not. Michigan is much worse. Massachusetts, Vermont, and Rhode Island have higher taxes than CA.

    CA is just the biggest state among the 10 or so states at comparable levels of mismanagement, and so gets the attention.

    Removing CA from the union should no more be discussed than the removal of MA, MI, or RI from the union.

  16. Texas already has authority to split into five states, as per agreement upon entering the Union.

    Rich, you are right about upstate NY. It’s becoming an appendage of Vermont, filling up with white libs from NY, Boston, Philadelphia & DC fleeing the urban problems without the slightest understanding of what caused those problems in the first place.

  17. SELL it to Mexico.

    If they can make the balloon payments every decade or so, fine. If not, then their neighbor can reposess and reorganize.

  18. Does secession have to be a one-way street, where the state secedes from the union? ‘Cause I think a case could be made for the other 49 states seceding from California. Divorce is divorce, why should it matter who files?

  19. Any analysis that starts “If we bail out California…” has already lost the battle.

    The last thing the rest of the country should do is bail out California. Let it, and its creditors, suffer whatever haircuts are needed to straighten out its fiscal disaster.

    If the rest of the country bails it out, the reforms will be half-hearted, the wrong people will be hurt, the wrong people will be rewarded and we’ll have to re-visit the whole mess in 5 years. (You know, like the GM bailout but an order of magnitude or two bigger.)


  20. @Rich … More the reason to break the US into separate countries so that we can try to bottle most of the crazies up before they contaminate the rest of us.

    @McGhee … Good idea, hasta la vista CA!

  21. Go bankrupt, default! When the door slams on state credit, it also buries liberalisms food source, killing it. A nice side effect will be that creditors, seeing it can happen will stop feeding the monster in other states. The way I see it the creditors mercilessly drown the taxpayers by lending without restraint under the unchallenged assumption that the state would rather put the taxpayer in vassalage before defaulting and choking off their golden goose.

  22. I have to say, this is an example of the extreme isolationist right vs. the extreme left having more in common than they would admit.

    a) Anyone who actually wants CA to leave the US is unpatriotic and un-American. Period.
    b) Since the US border will now be on Nevada and Oregon, how long before choose to boot them out?
    c) So the US does not want to be the country where companies like Apple, Google, Intel, Cisco, etc. hail from? Really?

    Removing CA is not an intelligent position to take, and certainly not a patriotic one.

  23. CA the state is not in imminent danger of failure, contrary to popular belief. Key word is imminent, really. G.O. debt service is protected as numero dos (for you californians) priority, with education coming first. As it is, state revenues are many times what is necessary to pay these items. The ‘imminent’ comes in when one views individual municipalities, and many are indeed close to bankruptcy, which is an option for them. As far as the state itself is concerned, the problem lies in maintaining revenue over a period of time in which they will almost certainly drive more businesses out of the state than they aready have, default on pension payments, and a host of other issues that erode the tax base. That process will not be quick, but it does seem inevitable, even if extreme austerity is ushered in by Jerry (not blinkin likely).

  24. Kinch said :

    Maybe Mother Nature will do everyone else a favor and have the western portion of California to collapse into the Pacific Ocean.

    And with that, you have proved that you are no better than the people who say ‘America deserved 9/11’. Given that NYC is blue, you probably think that too.

  25. We in the beautiful state of Cali could, with a little time and effort stop drowning in red. We could put our large off-shore oil (http://www.anwr.org/features/akeval.htm) deposits up for bid. Yet the majority of California’s and virtually all California politicians say no. We have mining claims that are closed for environmental (some are valid) reasons. People and organisations against development for any reason use the courts to in essence to close the mines. Same for forestry and hell for just about any business.

    The just look what our politician’s have done with anti business laws the past 10 to 15 years. We have lost more jobs and company’s due to our legislature than to the nations economy the past few years. We pass eco-laws that are the most stringent in the nation and the idiots in Sacramento seem shocked the company’s pack and move. Or they keep their corporate offices here and move everything else out of here.

    I am sorry for ranting but there are many more cases like this with the same end result. Some of the other problems with splitting the state is how would you supply the southern state with water? Because right now southern California gets water whether there is a drought condition or not. With two states southern Cal would have to pay more and I doubt that they would be happy. I could go on and on.

    The icing on the cake is that next month we swear in our new Governor a man who has made every election he has won a disaster for his constituents. Yet my state voted hell elected him again. If you have some time just look at the condition he left Oakland in when he left. Hell look at what he did the first time he was Governor.

    For those like me who pray I do ask that all of you say a special one for us California victims of a true man made disaster. Then say another one so the Congress doesn’t give us one dime.


  26. a) Anyone who actually wants CA to leave the US is unpatriotic and un-American. Period.

    Explain why.

    b) Since the US border will now be on Nevada and Oregon, how long before choose to boot them out?

    That festival in Nevada is called “Burning Man,” not “Straw Man.”

    c) So the US does not want to be the country where companies like Apple, Google, Intel, Cisco, etc. hail from? Really?

    So if California goes, those companies would go with it? Really?

  27. Maybe Mother Nature will do everyone else a favor and have the western portion of California to collapse into the Pacific Ocean.

    The real flaw in that scenario is that the ocean would almost certainly throw it back.

  28. Had to add that the real Nevadans, those that have been here for more than 10 – 15 yrs and have actually spent the majority of their time outside of clark county, would love to see clark county sectioned off and made part of ca, since in most ways it already is. That would also remove that searchlight fool from office, since the corruption in vegas is the only thing that gets him there.

    As far as ca leaving the union, well, it won’t be long before it de facto has, if it has not already.

    i4cu2, I suggest you move out of ca rather than lament its (and your own) fate.

  29. And with that, you have proved that you are no better than the people who say ‘America deserved 9/11′. Given that NYC is blue, you probably think that too.

    The difference is choice. NYC didn’t choose to have over three thousand people die. California has chosen the path it is on.

  30. CA the state is not in imminent danger of failure

    My ex works as an accountant for the state of CA. The reported deficit is $19b which she saw in one report. A later report less than a year later put it at $28b. This change happened after they knew they had a serious problem. What they don’t have is the serious intent to solve it. I’d call that imminent. My ex however agrees with you.

  31. Failure isn’t imminent. Failure already happened when you have those kinds of budget numbers. Even if California never defaults on any of its debt, you still have the problem that future Californians will have to pay far too much for government services and interest payments because of the debt accumulated by poor choices made in the past.

  32. California cannot revert to being a territory because it was never organized into one. It came into the Union through the Treaty of Guadalupe Hidalgo that ended the Mexican American War. On Sept 9, 1850 California became a state. From 1848-50, it had a military governor. The state seal alludes to this fact. It depicts Minerva, because she was born full born from the mind of Zeus, just as California became a state without ever having been a territory.

  33. Karl,

    You and I are just thinking of different timescales and definition of failure. The failure you refer to is truly the one that matters, since all the problems stem from it. I spoke only about default on G.O. debt, which would be pretty close to catastrophic in a very overt way. That particular thing is not likely to happen imminently… It will, however, be coming inexorably as time passes. I don’t believe anything can stop that now.

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