Which State Will Declare Insolvency First?

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By Dell Hill

I’m sure you’ve heard that within the past month no fewer than three large cities in California have either declared bankruptcy outright or at least publicly stated a financial picture so bleak they intend to seek federal bankruptcy court protection while they attempt to put their fiscal house in order.  Stockton, Mammoth Lakes and the most recent entry into this financial cesspool, San Bernadino, are all facing financial armageddon via Chapter 9, the federal bankruptcy law that includes municipalities.

The L.A. Times posted this recent accounting.

Chapter 9, however, does NOT include protection for states because states are sovereign and there are numerous constitutional hurdles to clear before any such protection is afforded California, or any of the other 49 states.

The California State Legislature has taken immediate bipartisan action to help all three cities…..Oh, wait.  No, that’s not what the legislature did at all!

The California legislature moved forward with it’s pie-in-the-sky high speed rail service boondoggle.  A proposal that will cost somewhere between $40 and $117 billion dollars, depending on whose figures you believe.

Oh well.  Good luck San Bernadino, Mammoth Lakes and Stockton!  While you’re wallowing in bankruptcy court – not to mention several dozen anticipated lawsuits – the very governmental body that should be helping you out is much too busy going belly up building a rail line that absolutely no one in their right mind believes has even a remote chance to succeed.

And that bring us around to a question we had for any United States Senator who might care to answer – what is going on behind the scenes at the world’s largest zoo to create legislation which will ultimately allow individual states to go broke?  You might find this hard to believe but only one such high official would even discuss the topic, despite the fact that approximately 10 states – 1/5 of the total – are primed for an inglorious fall from financial favor.  And that senator would only talk to me if I didn’t use his/her name in this report!  Nobody…and I mean nobody…wants to fire the first shot.

My early gut feeling was that the Obama administration is hanging on for dear life; praying to the gods of dollar signs that the subject remains off the table until after the November elections.  And the way I see it, that means they have 110 days from July 19th to hope and pray the subject isn’t forced into the light of political day.  To do so would send the Obama re-election campaign into total chaos – and even blaming George W. Bush for that eventuality would never, ever fly.  The nation’s electorate knows full well that the economy was bad when Obama was elected, and it’s insanely horrible now, after almost four years of hope and change.

“I’m aware of some private discussion taking place from all sides on this question,” the senator told me.  “There’s nothing to make public right now, but the wheels are turning and the legal scholars are burning the midnight oil trying to figure out a way to relieve the financial pressure and do so within constitutional constraints”.  The senator quickly added, “But, I’m not a direct party to those discussions, so….” and the voice trailed off to silence.

I tried, but failed to get an answer as to whom I might contact who IS a direct party to such discussions.  “I’d rather not go there at this time,” was the curt reply.

Meanwhile, back at the zoo, Obama & Company continue to cross days off the calendar and hope that November 6th arrives before the first state legislature turns to the federal government for a bailout that would make the General Motors deal look like chicken feed.

The outrageous budget deficits of California and Illinois alone would be enough to send American taxpayers into the streets with pitchforks and recall petitions.

This tactic makes absolutely good political sense.  If Obama is re-elected, the topic will almost immediately become public and the backroom wheeling and dealing that currently going on will start to become public discourse, led by the Democrats in an effort to retake the White House in 2016.  If Romney wins, the topic will almost immediately be made public by the Democrats simply to apply tremendous pressure on the Republicans (and the new President) to actively support “saving one-fifth of the Union”, and they (the Dems) can say “we forced the issue because we’re the party of the people”.  One way or the other, the topic simply has to come up.

We’re talking trillions more of YOUR dollars, folks.  This is some serious hardball.

James Carville is credited with the quote – It’s the economy, stupid! – and it will be just a matter of days before we find out if the American taxpayers have learned anything at all over the past three and a half years.  It’s called the “Lesson Of Holes”.

When you’ve dug a hole so deep you can’t get out, the first thing you do is STOP DIGGING.

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