California bankruptcy chatter alarms investors

Source: Press TV
http://www.presstv.ir/detail/161839.html

Some analysts are saying that bankruptcy could be California's best bet for getting out from under a crushing budget deficit of 25 billion dollars.

But current U.S. law prohibits states from declaring bankruptcy, which is why some are pushing for a change.

This call for a change in the bankruptcy law comes as California's financial future looks even more bleak than it did the previous year.

The state's budget deficit continues to increase while the unemployment rate shows no sign of dropping.

Declaring bankruptcy could be the best path for the state to get out from under it's crushing debt and move toward recovery.

Economists say other California municipalities are already taking advantage of bankruptcy protection.

The city of Vallejo and Orange County both filed for bankruptcy and are emerging with an improved financial situation.

But economists say there's a big difference between a city and a state.

That's why California Treasurer Bill Lockyer is already dismissing the idea of filing for bankruptcy, saying it would limit the state's ability to create jobs and to secure future investments.

And economists say California already has the lowest credit rating in the U.S.

However, proponents of the bankruptcy option say it will give California leverage when dealing with the public employee unions.

The state has a massive unfunded pension liability and the threat of bankruptcy might encourage unions to agree to reduced packages.

But economists say bankruptcy would not address the main reason California is in fiscal turmoil.

Republicans are expected to introduce the bankruptcy legislation within the next 30 days.

Experts say even if the bill was passed, it would take at least two years before states would be able to file.