Will California Go Bankrupt?

" California facing a huge budget crisis and today Moody's say in May downgrade the -- State's credit rating. Putting -- on its watch list. Governor on a Schwarzenegger vowing to terminate proposed tax hikes by the democratic state legislature. So the governor Vito is helping to stay avoid. Insolvency joining us now is Bill Watkins. He's professor and economist at California Lutheran University is bill is great you being here. You're also a former executive director on the economic forecast project university California. Santa Barbara under the same bell. All the lawmakers get -- well. What it."

" I have no idea. If it's like may nineteenth did happen. The voters I thought expressed pretty clear view and the conversation in Sacramento didn't candidate you have to think people think the same thing."

" What will happen though if the lawmakers cannot agree to tax increases slash. Spending cuts -- what -- will the state just go broke and stop paying its bills."

" at some point that that's likely if they can't keep borrowing and that there are some presidents for that. Right after the civil war you saw some states go bankrupt I think most of -- the self. But it was relatively soon when they were able to borrow again."

" Well already you're seeing increased borrowing costs the federal government has said that what we're not going to bailing out California -- and it it it is possible that that they could come sooner rather than let her."

" That's right the controllers saying next month is a crisis point if we don't have a budget. The either the cost of the -- going to be extremely -- they won't build borrowed off."

" Yeah lessons with California for the nation as a whole bill do you think is. -- just talking with a guest earlier. And it's is deaf Americans and it Californians they've got eight big try to get their own houses in order they know they barred too much and now they are demanding the same. From their -- year."

" That's right in California. Really never recover from the dotcom boom and revenues came up a lot they knew this temporary expended anyway committed it for long term. And the state has just been unable to. Face the -- the news and make an actual decision and they just compelled the politicians appear to be compelled to just keep spending."

" There are Californians looking and saying okay -- residents spending is -- what more than 25%. Over the last ten years. What am -- getting for my money."

" Well absolutely and and also when the time comes for cutting the you have to wonder why we start heading -- are threatened to cut. Essential services that have been provided for very very long time and and part of the problem is that. The states essentially have often do -- restructure itself without the advantages of a bankruptcy court. And so politics in -- into it and people with the most political power IE money. Seemed to be out driving it and they -- the less. People let's -- resources end up about paying for."

" Do you think though that I guess programs that were seen as untouchable are now taught to -- you're talking about education. The prison system pensions ultimately will those things get slashed."

" You don't I don't know the war the way -- California politics works pensions are are untouchable and I you I just don't know if they will have the courage or the wherewithal politically to do that. Which is why it's unfortunate there's not some other way to restructure. "

" How you again with just California there was an op Op Ed in The Wall Street Journal today talk about California may be. Schwarzenegger pushing for a flat tax. And it's got the highest teacher salaries but the second lowest math and reading scores in the nation and how can. Why aren't I guess that the citizens of California why they demanding more from the money that's thinks that they aren't -- many black yet again."

" Yeah I think they're demanding it not getting it I understand there -- a lot of propositions. That are being put together and in anticipation of the next election what happens in California. And we saw this in 1978 with prop thirteen the out political class was unable to deal with that -- for several years finally. The us citizens rose up and put in prop thirteen. And and when that when -- political class is unwilling to. Or unable to deal with something almost always the the the public put something in there that's more more onerous form."

" Black and flat tax. Does have a leg and his."

" As a possibility but. I you know right now there are some groups trying to put together some changes in the constitutional there's a proposal to do -- new constitutional convention and and we hope -- progress on those lines."

" Please keep us posted bill again what happened there you -- could be precursor for what happens nationwide thank you bill Bill Watkins California. -- professor and economist."