California and Michigan budgets for the upcoming year are warranting serious concern according to the states’ finance directors. With the federal stimulus money that has filled budget gaps since December of 2008 quickly running out, the states are left wondering how they will make up the difference.
California State director of finance, Michael Genest, who went so far as to try to declare bankruptcy for the state, doesn’t see how that’s possible. "I looked as hard as I could at how states could declare bankruptcy," he said, speaking at the Pew Center in Washington. "I literally looked at the federal constitution to see if there was a way for states to return to territory status."
No such option exists and as far as Genest can tell, California is out of options altogether. He is stepping down at the end of the year.
Director of the Michigan House Fiscal Agency, Mitchell Bean is equally pessimistic, predicting that the budget gap with exceed the projected $7 billion for 2011. “There is not an end in sight,” he said. “We’re facing a cliff in 2011.”
Extreme cuts have been made in both states, and Genest’s portrayal of budget placement for ’11 and beyond is grim. He predicts that eventually 40% of the California budget will go to education with another 40% on Medicaid, another 10% on debt service and 6% retiree medical services with almost no funding remaining to uphold the state’s justice and correction systems.
Michigan is no better off, suffering from a reported unemployment rate of more than 15% as of September.
“I am very concerned that we're going to have a lot of insolvencies in local governments," said Bean in regards to the local cuts he anticipates.
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