I can't imagine what a bankruptcy process would look like for a public entity as large as California.
Putting aside the legal reality for the moment, in theory if the state could and did declare bankruptcy, wouldn't CA need to sell off assets to its creditors in order to pay down some of the outstanding debt before it could proceed with a debt restructuring plan? Couldn't we end up with a scenario where another state who purchased CA debt (if there are any) ends up owning CA state parks, port authorities, schools, and other state-owned policies? How might that go down?
I know it's not realistic, but now I'm curious as to what it would look like...
California cannot declare bankruptcy, but according to the article its because it doesn't need to - states have sovereign immunity. They don't need the protection bankruptcy normally provides.
So technically California cannot, but its more because it never needs to, not because it always has to pay any debt it takes on. They can just tell debtors to f off (of course, no-one would lend to California if it made a habit of doing so).
I think you mean that as a sovereign borrower, California can freely default or unilaterally impose a restructuring on its creditors. California is the debtor in this case. Federal bankruptcy courts wouldn't be able to interfere.
The wild card is what the California Supreme Court would do? While the state has sovereign immunity, in a default any creditors would certainly file suit in state court. There isn't much law covering the situation so it is conceivable that the judicial branch would order the executive and legislative branches to raise taxes or sell assets in order to meet obligations. That would create a constitutional crisis.
