The health of state and local finances across the nation is deplorable right now, and more than a few analysts and pundits have warned the news is likely to get worse soon. Some have predicted a wave of municipal defaults and perhaps even some state defaults.

Is one answer a wave of micro-loans from state residents? California has formulated a measure that would sell state bonds in increments of just $25, according to Bloomberg. That would be by far the lowest denomination state bond issue in recent memory. Some states have gone to $1,000 chunks.  Bergen County, New Jersey sold bonds in chunks of $610 in 2008. The state has worked with various big-name investment banks to come up with a way that make it worth their while for clients to buy such bonds.

The state of California obviously would like to attract more financing and lower rates, and retail investors loom as a relatively untapped source. But I'm not so sure there's a lot demand out there. I have a hard time seeing investors clamoring to give the state a microloan, especially when the rates are likely to be at rock bottom. But there might be some inducements.

Will we see a marketing campaign from the state? One that appeals to their California residents? Or is there a Patriot Bond (series EE) benefit built in?  Will the return include the inflation rate, periodically adjusted? Will they be sold at half the face value? If this takes, other states will have to take a close look.

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