You’ll know that things are getting really bad when states begin defaulting on their bonds. A Federal bailout would effectively be a federal seizure of control and an elimination of the last vestiges of a state’s sovereignty—not that the states exercise much sovereignty now. A state under total Federal control would be in receivership under the same financial interests that own the Federal government.
“One question keeps coming up as governors and legislators grapple with a seemingly never-ending stream of gloomy budget news that keeps getting worse: How bad can it get?
“The answer, according to experts and a look through history, is probably that it could get worse than it has been in a generation — maybe even a lifetime — but not catastrophic.
“‘If revenues don’t pick up, states are going to be in a pretty tough spot when we get to 2011,’ said Kim Rueben, a state and local tax policy expert with the Urban Institute. ‘Do I think it’s going to be the end of the world as we know it? No.’
“Bankruptcy, at least the scenario where a judge would take control of a state’s finances, is off the table. Bond defaults, the cardinal sin of public finance, seem highly unlikely for states. Another federal bail-out is plausible. Some state governments may even be fundamentally overhauled. But the worst for most states will sound familiar: service cuts, tax hikes, IOUs, layoffs, furloughs and political gridlock.”
Read more at Stateline.org.