Friday, May 22, 2009

Is California Too Big to Fail?

Joe Matthews of the NY Times asks the question:  "Is California Too Big to Fail?".
"IS California too big to fail?

That’s the question President Obama and Congress will soon face. While many states have severe fiscal problems, the depth and unusual persistence of California’s budget problems — the state has run deficits for most of the decade — has emptied Sacramento’s till. On its current path, California will run short of the cash it needs to pay its bills in late July.

It’s highly unlikely that the state’s political leaders will be able to fix the problem themselves. Typically, states build up a cushion of tax revenues in the spring to pay expenses through the fall, when little cash comes in. But enormous drops in tax revenue have left California without the savings to meet even one month’s worth of expenses.

The other methods of cash management — transfers to the general budget from other state accounts and short-term borrowing in the credit markets — are no longer enough to address the problem. California’s leaders have drawn so deeply in recent years on the state’s hundreds of special funds that there is little cash left to repurpose.

And selling short-term notes in the credit markets is difficult because of California’s credit rating, the lowest of any state. Even if the state could pay high interest costs, California may require more cash — more than $20 billion by some estimates — than it can plausibly acquire in the markets."

Let's hope not!


  1. Sexy L&S MommaApril 21, 2010 at 6:54 PM

    Fair Contraire where are you?

  2. One of the things that caused this problem is the direct democracy in california. Voters love to vote in nice social programs and expensive 3 strikes laws but don't like to vote to raise taxes!


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