The BBC points out today that California is the world's eighth largest economy and generates nearly 13% of US gross domestic product - which means what happens there matters for the rest of the country. The State is in a $24.3 billion hole, purportedly has the worst credit rating of any state and many commentators now "fear for the health, welfare and safety of society" as the California government begins to cut services. State Controller John Chiang told the BBC many vulnerable people had been put in harm's way by the state's failure to agree the budget and to provide "essential dollars to help these people pay their rent, to put food on the table or to pay their utility bill".
Potential cuts include delaying payments to companies working for the state and to those relying on state benefits and grants.
The news raises serious settlement planning and litigation recovery management concerns for tort victims and their attorneys as investing in state municipal bonds may be too risky. Structured settlements, whether funded with annuities or United States Treasury obligations offer tax free income. As I reported last week the majority of issuers of such structured settlement "qualified funding assets" have credit ratings that exceed that of the State of California.
For the complete BBC story on the California fiscal crisis please click here