California, Can the Golden State Be Tarnished into Bankruptcy?

And we Thought Gray Davis was Bad... (he was)

Technically, the Federal Bankruptcy laws do not provide for or allow a State to file for bankruptcy protection.  Bankruptcy would allow the state to take a deep breath and have a third-party look at the financial condition of the State and make the hard choices that our Governor and our legislature have failed to do.  The sticky issue is that a State cannot file bankruptcy.  Not because they are a sacred entity but when the bankruptcy laws were written, States were not included.  The code defined specific public sector entities that were stated to be “municipalities”.   The definition of municipality has been interpreted to include Cities, Townships, School Districts, Counties or any other public entity underneath the State

What are the alternatives available to States who cannot meet their obligations?  If the State were a business, a business would draw up a reorganization business plan and include the following:  (these are high level bullets and specific function by function suggestions will be made in subsequent articles)

  • The Legislature is basically sent home until a plan for reorganization can be completed.  They cannot spend one single cent until the plan is completed, adopted, and implementation is underway.  Keep the pigs away from the trough!
  • Legislative support staff will be limited to two administrative assistants.  Period.
  • Legislative offices will remain as is unless the legislator wants to buy his or her own furniture or paint their office on the weekend…
  • The Governor has to stay home and work on the plan full-time.  This is his job, ARNOLD.
  • The Governor’s support staff should be limited to no more than twenty administrative assistants.
  • “Defer” payments to secured and non secured creditors.
  • Lay off all non-essential State Workers immediately.
  • Cut federally funded programs to equal only the amounts reimbursed by the Federal Government. (Our Welfare payments are higher than the Federal Reimbursement rate.)
  • Stop funding federally mandated programs that are not reimbursed 100% and sue the Federal Government for the difference.  They will sue us for sure when we drop the program.
  • Look at every single department and create a cut list of departments that can be eliminated or outsourced.
  • Review State reimbursements to the municipalities under the state where the state collects revenue on their behalf.  These payments must be a higher priority than any other disbursement or you create a domino effect through the State.
  • Eliminate every single Governor Appointed Advisory Board.  Private industry will chip in to help advise the governor gratis until this is fixed. 
  • Analyze every union contract that the State has and prepare a salary and benefit program that is sustainable.  This will be the starting point for dealing with the unions.  (See if Governor Christie from New Jersey can moonlight on the weekends and help out)
  • Analyze every non-union salary and benefit programs the State has and prepare a salary and benefit program that is sustainable. 
  • Analyze our outstanding financing obligations and create a restricting plan for the debt.
  • Use all of this input to start with a zero base budget. 
    • Each State function is analyzed and prioritized against the other
    • For those functions that made the cut, start with a budget assumption of zero cost and add only essential personnel, plant and equipment to support the function.
    • A Citizen First policy must be part of the budget and services provided first to the legal Citizens of the State of California.  If the Feds sue us, then we counter sue for the costs.
  • Analyze all current income sources including federal reimbursements, tax revenue, fees, etc. 
  • Create a revenue plan that includes a maximum income tax rate of 5% with planned reductions until income taxes in California are eliminated.

The product of this exercise will be a reorganization plan that can be used as a blueprint for the future of California.  The State Constitution must also be reviewed concurrently for changes that will be needed to implement the plan.  The Governor and the Legislature then will have to sit down and agree on the hard choices.  If they cannot, WE THE PEOPLE WILL.

This is probably all a pipe dream on my part and marijuana is not even legal, yet!

Most likely Obama will ride in on his white horse and save the day and bail out the unions; flush the bond holders down the drain; and take over the day-to-day operation of California.  Maybe we will even get our own California Czar!  The more we punt this problem down the road the tougher it will be to turn this State around.  Either Meg or Jerry will be saddled with this problem.  Meg will push for the reorganization with little or no federal intervention.  Jerry already has purchased the wheel barrow to push to Washington to load up with bail out cash. 

November 2nd in California will be a game changer one way or the other. 

Your vote will probably decide the long-term existence of California as a State as we know it.


RD Pierini


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