Just read another thread about state debt, and that got me thinking about the end game of state debt, can a state default? Can California declare bankruptcy? Wouldn't that require a trustee, and wouldn't that trustee in fact be the dictator of said state? It seems as though it would require suspending the state constitution, but I don't know enough about it to have a valid opinion.
Can a state default on it's debts?
- Thread starter Greenman
- Start date
Federal law permits individuals, businesses and local governments to file for bankruptcy reorganization and sometimes debt forgiveness. States are not covered by the law. No U.S. state has ever declared bankruptcy.
- Oct 30, 2000
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States can issue bonds. At a extra rate of return. It will keep them solvent. And/or they can kiss up to the Feds as previously demonstrated for $$.
No need. Ca state and local gov spends about 200 billion on state and local employee benefits. Fire almost all of them and poof, there goes the deficit and then some. It's what, about 26 billion?
So how can a state go broke? Another way to look at it is what happens when the money is gone, the feds won't write a check, and a bond issue won't pass? There are contractual obligations that have to be paid, who steps in to clean up the mess?
My education is seriously lacking on this subject, but I do know that a state can't just dry up and blow away. There has to be some procedure they have to follow.
I may not even be phrasing the question properly.
hal2kilo
Lifer
- Feb 24, 2009
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A state can't ever have "the money be gone". There is always a flow of money from state taxes and fees, along with money from the feds.
If a state got deep enough in debt it might stop paying salaries and/or default on obligations, but that wouldn't stop it from collecting many taxes and fees.
If a state defaulted on bonds or other debts it would of course have problems trying to get anyone to loan it more money or sell it goods on credit, but it would still have cash. It would be up to the state itself to negotiate with debtors just as with over sovereign countries / states like Greece.
Yes and they should so that no one lends them anymore money.
A problem, however, is that the creditors, many of whom are in debt themselves, will come to the federal govt asking to be bailed out.
A problem, however, is that the creditors, many of whom are in debt themselves, will come to the federal govt asking to be bailed out.
OBLAMA2009
Diamond Member
- Apr 17, 2008
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the answer if obviously "no", otherwise lots of states and the united states itself would have been shut down a long time ago
I don't think you are any different than anybody else. I don't think anybody knows or can know until after it happens. Then there will be ten million opinions on what actually did happen.
What we do know is that conservatives are motivated by fear and have big eyes and ears for fear that makes them not like change. So when it comes to state bankruptcy, conservatives may have wisdom to offer, that it's better not to enter a state of chaos since order is hard to build and maintain. Liberals may be more stupid about this and even think chaos might be fun. It might be fun for some, but I think folk on the margin will only find life much much worse. Conservatives have persuaded me of this.
I don't think anyone could see this as good thing. It's possible that there might be some benefit in the long run, but it seems as though the short term misery would would be off the scale.
I almost agree with you about conservatives not liking change. I know many that are like myself in that respect, we don't want change, we want improvement. Change is what happens when you're tired of your wardrobe, improvement is what happens when you learn from your mistakes, and want a better outcome.
Change also isn't a goal or destination, in government, it's often just another way of making the same mistakes.
diesbudt
Diamond Member
- Jun 1, 2012
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Brovane
Diamond Member
- Dec 18, 2001
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Cities and counties have declared bankruptcy. The trustee isn't really a dictator in this instance. However under Federal Law a state cannot declare bankruptcy. If a state like CA tried to declare bankruptcy this would create law suits and counter law suits. The biggest thing I think CA could get out of Bankruptcy is the ability to re-open contracts that where previously signed. Especially in the area of Pension's. It would allow roll back of previously given benefits.
Matt1970
Lifer
- Mar 19, 2007
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I believe it was Connecticut that recently had a major storm that knocked out power to a good portion of the residents. Normally nearby states would come to the aid and send utility trucks and crews but Connecticut hadn’t paid for the last time help was neede so the majority didn’t respond.
zephyrprime
Diamond Member
- Feb 18, 2001
- 7,512
- 2
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There have been numerous government bodies that throughout the centuries have defaulted on their debts. It's actually pretty simple when it comes down to it since there aren't superior government bodies dictating terms in the case of nations. When mere provinces default, the situation is a little different. Basically they just stop paying. Sometimes there's renegotiation. Often a combination. I don't know if there have been times where the nation paid instead but there probably have been.
Thump553
Lifer
- Jun 2, 2000
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It's is the possesive form of it. I don't think its is ever proper usage, but I'll leave that to a more anal grammar nazi.
Actually the federal govt can take over a state and replace the elected governor with a federally appointe governor and just move in federal troops. They did this in Utah once. It is really easier just to let the state go to pot. All the state really needs to do is cut way back on employees and services.
Of course the state can declare an emergency and declare martial law and call up the national guard.
Of course the state can declare an emergency and declare martial law and call up the national guard.
Illinois should be broken into sections and parceled out to the surrounding states, anyone counld do a better job of running a government than Illinois has done. Chicago has been sucking the life out of the rest of the state for decades.
Lithium381
Lifer
- May 12, 2001
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can't do that, because then people would have to worry about paying their mortgage and putting gas in their cars
Fern
Elite Member
- Sep 30, 2003
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Here's an article about it:
http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html?pagewanted=all
Yes, a state can default. As soon as a state misses a contractually obligated payment on a bond they are in default. You do not need to be in bankruptcy to default, and defaulting does not mean you will be in bankruptcy.
No, as you can see from the article, a state cannot declare bankruptcy. Bankruptcy is handled in federal court, and federal courts have no jurisdiction over states as regards bankruptcy.
Fern
Interesting stuff. It appears as though any state could in fact just stop paying it's debts. The only recourse would be through the Federal courts, and that could take years.
It's going to interesting to see how it plays out when the first one goes down.
Doppel
Lifer
- Feb 5, 2011
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