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I believe both entities can declare bankruptcy. There have however been rumblings that if a city were to declare bankruptcy the county and/or state can do somet
by surlyadopter 16y ago
I believe both entities can declare bankruptcy. There have however been rumblings that if a city were to declare bankruptcy the county and/or state can do something to either block it, or block the judge from invalidating the employment(ie pension) contracts.
Hopefully it won't come to that but a few OC/Inland Empire cities are right on the edge.
- wooster 16y agoCalifornia cannot declare bankruptcy: http://www.slate.com/id/2246915 http://www.slate.com/id/2246915
- surlyadopter 16y agoWell there you go. Even if we could it probably would not be a good idea (except in the hearts of our states Ron Swansons).
- Aaronontheweb 16y agoThanks for the clarification. 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...
- sbov 16y agoCalifornia cannot declare bankruptcy, but according to the article its because it doesn't need to - states have sovereign immunity. They don't need the protection bankruptcy normally provides. 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).
- nradov 16y agoI think you mean that as a sovereign borrower, California can freely default or unilaterally impose a restructuring on its creditors. California is the debtor in this case. Federal bankruptcy courts wouldn't be able to interfere. 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.