For Californians hoping that state and local government could stop the bleeding, there is more grim news. On Saturday, the San Jose Mercury News reported that the state’s budget deficit – worst case –  could reach $25 billion next year.

Twenty-five billion dollars.  Translation: That’s 29.5 percent of the current $84.5 billion general fund budget.

This may explain why California’s finance director was quoted on Friday as saying that earlier this year he explored the possibility that the state could declare bankruptcy. According to the Wall Street Journal, Michael Genest told a Washington conference: “I looked as hard as I could at how states could declare bankruptcy. I literally looked at the federal constitution to see if there was a way for states to return to territory status.”

BTW, Genest is walking away from his job at the end of the year, having decided there are better ways to make a living than slashing budgets and trying to negotiate with politicians who don’t want to make hard choices.

Meanwhile,  Gov. Arnold Schwarzenegger acknowledged earlier this week that next year’s shortfall will be at least $12 billion, and that was the best-case scenario.

For state and local governments, there will be no happy outcomes here. This is going to be ugly.

Californians are left to hope that these adversities will bring the recognition that fundamental reforms are necessary. The current hodgepodge  of state and local government is bloated, redundant and parochial; it often works at cross purposes; and it’s sinking of its own weight.

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