A piece I penned in today’s New York Times, entitled Golden State Bailout, grew out of some reporting I did for a post at Fox&Hounds a few weeks ago. Despite all of today’s back and forth, the case for the state to receive federal loan guarantees for its short-term borrowing is a very easy one. Such borrowing would keep the state from falling off the cliff, and there’s virtually no risk — and absolutely no cost — to the treasury. In fact, California will have to pay a fee.
That said, for political and policy reasons (namely, that California appears unable to govern itself), the feds should attach major conditions to guarantees. Essentially, the feds should use its leverage on the short-term cash flow problem to force the state to adopt a real budget plan that fixes the long-term, structural deficit.