California’s state treasurer, Bill Lockyer, denounced on Monday continuing efforts to establish a new framework for states to restructure their debts, saying no state wanted or needed to declare bankruptcy.
Armando Arorizo/Bloomberg News Bill Lockyer“It’s a cynical proposal, intended to incite a panic in response to a phony crisis,” Mr. Lockyer said on a conference call with journalists. “Killer bees, space aliens, and now it’s the invasion of the bankrupt states.”
As reported, a number of members of Congress have been quietly looking into possible amendments to the federal bankruptcy code to accommodate the states, which cannot now declare bankruptcy.
Mr. Lockyer, a Democrat, said he thought this “ludicrous” idea had been cooked up by politically ambitious Republicans. “Their allies,” he said, naming them as big insurance companies, banks and hedge funds, would torpedo the idea, because “even the faint odor of bankruptcy hurts the values of the bonds that they hold.”
The treasurer also said any talk of bankruptcy filings would hurt states, like California, that are grappling with fiscal problems, because investors would perceive a new risk and demand to be compensated for bearing it.
California has a $25 billion budget deficit, but Mr. Lockyer said residents of the state paid much more in federal income taxes than California ever got back in federal transfers.
“People ought to thank California,” he said.
The treasurer also elaborated on the possibility that California might have to issue i.o.u.’s to pay its bills this spring — as it did in 2009 — if the State Legislature fails to produce the severe austerity that Gov. Jerry Brown has requested. Sharp cuts must be made in important programs, like indigent health care and the state university system, if the state is to keep from running out of cash by the end of the current fiscal year on June 30.
One way to save money, Mr. Lockyer said, would be to refrain from issuing any general obligation bonds until the second half of the year, cutting down borrowing costs. California has not failed to issue such debt in the first half of the year since 1988, but Mr. Lockyer said the state had all the project financing it needed for the time being.
He said officials would be looking for cash expenditures to defer, depending on how quickly new tax dollars start arriving this spring and how aggressively the Legislature and the governor close the budget deficit.
“Then, the next option, if you run out of deferrals, is to issue i.o.u.’s,” Mr. Lockyer said. “It’s a possibility. It’s not one that anyone wants to do. It’s at the bottom of the list of choices. But it is on the list.”