That means a fire can spark anywhere along thousands of miles of power lines that make up the electrical grid, creating a huge liability for the utility. Earlier this year, the Legislature made it easier for utility companies to absorb the cost of fire damages by borrowing from the state and charging customers to pay back the bonds over many years. So far, no state-authorized bonds have been issued.
The controversial bill, SB , covers fires that burned in and those that start in , but not any for We want to hear from you. Want to submit a guest commentary or reaction to an article we wrote? You can find our submission guidelines here. With court approval, a state could rewrite its union contracts. It's possible, too though legally less clear that a state might re-negotiate its existing pension benefits -- a prospect that pensioners, understandably, find abhorrent.
Any attempt by California to use bankruptcy law to claw back pension benefits, he says, would be "legally and morally wrong.
State retires have dedicated entire careers to state service. They have earned their pensions. Politicians, he said, "need to look beyond easy scapegoats. Holders of the state's bonds would suffer, too, since under bankruptcy they would be treated as unsecured creditors. The only question is: to what degree? In Vallejo's case, he said, bond holders stand to get somewhere between five to 20 cents on the dollar.
If you're thinking about buying municipal or state bonds, he said, there are several things you can do to reduce your risk: Visit the website of the Financial Industry Regulatory Authority, FINRA , which has checklist of questions you should ask your broker before buying any bond.
O'Brien said the chance of a state declaring bankruptcy is remote. California, he says, isn't Greece. At the worst, they're not going to be able to float any new debt. The result is a surge in spending and a collapse in revenue. Bankruptcies are about fresh starts for people and businesses struggling to pay insurmountable debt. The upshot is an individual or business emerging with a fresh start and carrying little, if any, debt. Bankruptcy is different from default, which is when a debt payment is not made.
People and businesses have a legal right to declare bankruptcy in many situations. They almost never have the right to default. It might sell off assets that can be liquidated and pay as much debt as practical.
The remaining debt is either reorganized into a payable form or wiped away completely. The details of bankruptcy vary by case.
Individuals, who usually have low credit scores , and businesses have very different sets of bankruptcy laws, and different sets of laws govern depending on whether a business will end in bankruptcy or whether it will use this process to restructure its debt and carry on.
Cities have, on rare occasions, declared bankruptcy. The largest and most recent was Detroit in No state has ever done so, however. In part this is because almost every state has some sort of balanced budget requirement in its constitution. This means that they cannot take out debt to cover unfunded obligations, and as a result have rarely found themselves in a position to need bankruptcy protection.
Any effort to legalize state bankruptcy, or commence one, would likely spark numerous legal, economic and political issues. But, borrowing can also be used to pay for current expenses or to fund white elephants such as the bullet train. How can pensions become a problem?
If a city or county goes bankrupt, federal bankruptcy law overrides the state constitution and allows but does not require pension benefits to be renegotiated in a bankruptcy. Bill Fletcher. This analysis begs the questions: How much debt is too much debt? How and when does it end? What is fairly certain: Some other states such as Illinois could be an early warning sign for California in that they will get into trouble sooner. We can see what happens there and perhaps learn something. The Commonwealth of Puerto Rico which defaulted last year and which is now controlled by a federally appointed oversight board provides an even starker warning of the risks we face.
We are unlikely to have a state-wide crisis. We are more likely to have increasing problems in individual cities, counties, school districts and special districts. The financially weakest agencies will run out of options and get in trouble first.
During the last five years, we have seen bankruptcy filings by the cites of San Bernardino and Stockton and by healthcare districts in Contra Costa and Sonoma Counties.
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