The Beast Is Dying Of Starvation -- Now What?

Assemblywoman Diane Harkey (a Republican, representing southern Orange County) joins Democratic Attorney General and likely Gubernatorial nominee Jerry Brown in saying that the state is "bankrupt."  Which is about right -- we're missing a quarter of our anticipated state budget and between now and the end of the upcoming fiscal year, we have to come up with a combination of either new revenues or spending cuts that total $20,000,000,000.  That's twenty billion dollars.  And we've got a sixteen billion dollar bill coming due, this year, for healthcare premiums to be paid for retired state and municipal workers.

But, not so far, say Controller John Chiang and a spokesman for Treasurer Bill Lockyer.  Chiang says that should the state have to miss a debt service payment, it will seek judicial restructuring of its debt repayment plans.  Which would be, it seems to me, exactly what happens in a Chapter 11 bankruptcy.  And according to Lockyer's office, Harkey and Brown are guilty of causing a harmful panic by even talking about this:

You might score some political points by saying the state is bankrupt, but you're hurting taxpayers when you do that. We are not basically bankrupt ... When you have that kind of talk out there and it makes it into the papers, it poisons the market when you go to sell bonds.

Quoth Stephen Green, "Lockyer is worried California might have trouble borrowing its way out of its spending crisis." A pithy assessment of the proposed "solution" to this problem indeed.

Harkey and Brown are not just scoring political points.  Chiang doesn't like the word "bankruptcy" but that's what he's talking about as a functional matter.  And Lockyer is, well, living up to the sterling reputation for principled, intelligent governmental service that he built up for himself in the Assembly and the Attorney General's office.  Maybe Lockyer is a good lawyer and a good prosecutor; I wouldn't know, but there's a reason the Democrats are not looking to Lockyer as their guy for Governor this November.

Because Brown is right and Lockyer is wrong.  Harkey is right and Chiang is wrong.  The state is bankrupt.  The beast has been starved.  When obligations and debt outweigh available assets and cash flow this powerfully for a business, the decision is between Chapter 7 and Chapter 11.  For a state, as a realistic matter, Chapter 11 is the right way to go because the state has fundamental obligations under its own Constitution and under Federal law to continue providing a large number of services, and there is still an impressive cash flow.

And there is no equivalent of Chapter 7 bankruptcy for a state, something I made a bitter joke about nine months ago.  A state, once created, cannot be dissolved or altered as a sovereign political entity without not only its own consent but also an Act of Congress.  No such thing has ever happened in our history.  Such a thing happening now would kick all of California's problems off to Washington, and Washington doesn't want these problems, so there is no realistic way that Congress would agree to a proposal to place California in Federal receivership.

But someone needs to cut spending.  And it's going to sucksucksuck I mean megasuck, with good people losing their jobs and more good people taking painful cuts in pay, and all sorts of social services, including schools and prisons and courts, getting reduced in staffing and effectiveness.  I'm seeing it now in the courts as they prepare for the inevitable -- we're losing a judge up here at our local courthouse and come Monday, one in eight of the support staff (clerks, baliffs, courtroom attendants, and the rest) are going to be laid off.  Our income and sales taxes are already the highest in the nation, beating out even the traditionally heavy-footed governments of the New England states.  So there isn't much practical room for further taxation.

If the Legislature and the Governator can't or won't do it, the job of cutting state spending is going to eventually fall to a judge.  A judge who really, really doesn't want the job but will have to do it anyway, because judges, unlike elected politicians, have an obligation to actually resolve the issues that come before them.  I can confidently predict that in exchange for doing this job, the unlucky judge to whom this unenviable task falls will face the most profound political criticism any judicial officer has faced since Clarence Thomas first opened a can of Coca-Cola.  That's simply an unfair thing to do to an innocent judge, but that is what is looking to me like the inevitable means of resolution.

What that judge will do to earn this obloquy, though, is what the Legislature is too spineless to do on its own -- slash spending and demand that the California Constitution and a library full of laws containing spending mandates be re-written.  It will be profoundly undemocratic and it will open up political problems to solve for years afterwards.  And since we've populated the high ranks of our state government with invertebrates like Lockyer and Chiang, I don't see any realistic way to avoid it.