If the state doesn't implement this on their own soon, it's going to happen anyways once its bond rating falls and we can't use debt to supplement our declining tax reciepts.
Correct me if I'm wrong here: a city CAN declare bankruptcy but a state CANNOT under current law and precedent - true or false?
Hopefully it won't come to that but a few OC/Inland Empire cities are right on the edge.
I can't imagine what a bankruptcy process would look like for a public entity as large as California.
Putting aside the legal reality for the moment, in theory if the state could and did declare bankruptcy, wouldn't CA need to sell off assets to its creditors in order to pay down some of the outstanding debt before it could proceed with a debt restructuring plan? Couldn't we end up with a scenario where another state who purchased CA debt (if there are any) ends up owning CA state parks, port authorities, schools, and other state-owned policies? How might that go down?
I know it's not realistic, but now I'm curious as to what it would look like...
So technically California cannot, but its more because it never needs to, not because it always has to pay any debt it takes on. They can just tell debtors to f off (of course, no-one would lend to California if it made a habit of doing so).
The wild card is what the California Supreme Court would do? While the state has sovereign immunity, in a default any creditors would certainly file suit in state court. There isn't much law covering the situation so it is conceivable that the judicial branch would order the executive and legislative branches to raise taxes or sell assets in order to meet obligations. That would create a constitutional crisis.