Posted on 11/30/2008 8:13:09 AM PST by SmithL
California lawmakers are engaged in an irresponsible game of political chicken that risks state insolvency early next year.
With the recession deepening, revenues continue to dribble in slower than projected. If no steps are taken to alter the revenue and spending trajectories, the state will fall short by $11 billion this fiscal year and $28 billion — or more than the state spends annually on prisons and higher education combined — by the end of the 2009-10 fiscal year.
But the day of reckoning could be much sooner than that. Under current cash flow scenarios, the state will run short on money to pay its bills by perhaps as soon as March, says the governor's number-cruncher, state Finance Director Michael Genest.
"The situation is terribly serious and we need massive action on both the revenue and the spending side immediately to avoid a disastrous cash flow problem that could happen as early as the spring or by the summer," Genest told us last week.
"There is no threat that we would fail to meet our obligations to our bondholders short- or long-term. ... The threat is not to bond holders. The threat is to school districts, the threat is to vendors that do business with the state, the threat is to state employees. ... If we don't act soon, we will start to see that and we will start to see that cascade happening. If it goes very far it will be devastating."
The state must cut its spending and it must raise taxes. But the lame-duck Legislature ended its session Tuesday without making any progress. Newly elected legislators will be sworn in Monday and Gov. Arnold Schwarzenegger will immediately call the Assembly and Senate into emergency session to address the budget.
Any budget deal requires two-thirds approval of the Senate and Assembly, which allows the Republican minority to block any accord. That means everyone must cooperate. Unless our leaders start acting like grown-ups, the state will face a fiscal meltdown. There's too much finger-pointing going on and not enough action. And everyone, including the governor, is to blame.
Democratic Assembly Speaker Karen Bass's hope for a federal bailout is breathtakingly naive and her refusal to offer spending limits as part of a budget package dooms it to political failure. Republican legislators' feckless intransigence on tax increases combined with their refusal to offer up their own list of spending cuts irresponsibly places the state at risk of financial collapse. And the governor's push to link the budget talks to labor law changes muddies the waters and makes compromise more elusive.
While it was not perfect, the Democratic proposal defeated last week was a reasonable start that could serve as the starting point for negotiations. It would address $17 billion of the problem with $8.1 billion in tax increases, $8.1 billion in budget cuts and about $800 million in other solutions, such as fund transfers.
On the revenue side, it would increase the car tax from 0.65 percent back to 2 percent, where it was five years ago, which would increase the annual fee by $135 for the owner of car worth $10,000. The plan would freeze the state income tax schedule at its current rate rather than adjusting it upward for inflation as is usually done. A person making between $40,000 and $50,000 would pay an additional $79 in state income taxes on average, and someone who earns between $50,000 and $100,000 a year would pay an extra $127 on average.
As for spending reductions, the Democratic plan would cut $4 billion to public schools over two years, while aid to the poor, blind and disabled would be slashed by $600 million over that period — or about $700 per recipient each year. The proposal also would cut money for community colleges and public transit systems, while denying state welfare recipients a cost-of-living increase.
There's a lot of pain in that for everyone. And, perhaps, there are better solutions. But the GOP legislators' response of slamming any tax increases puts the onus on them to specify what more they would cut instead. Simply refusing to participate in a meaningful way is childish and unacceptable.
We have a real crisis. There is no easy way out of this mess. The longer lawmakers wait, the larger the deficit and the steeper the path back to fiscal stability. We are headed for the cliff and can only hope that our leaders apply the brakes.
The article incorrectly assumes that higher taxes equals higher revenues. The Laffer curve doesn’t exist for Democrats.
This is an overspending problem, not an under-taxation problem.
We’re having the same issues on the local level down here on the south end. The firefighter’s union is demanding that the city hire nine new employees even though both the population and the call volume have dropped close to ten percent. We’ve been having a five month fight with them, and they’ve managed to elect their bought-and-paid-for candidate to our City Council.
On the state level, we have that wonderful “progressive” initiative that mandates an increase in education costs each year regardless of the state’s ability to pay. That’s not exactly helpful.
The State also needs to address the reasons why companies are moving out of the State. The State also needs to address illegal immigrants and their support and drain on the States economy, hospitals, schools, businesses and crime in our cities.
Everywhere the dims control lay in financial ruin. Their only ‘solution’ is a federal bailout. From MI to CA, it is clear what ruinous spending and excessive govt regulation will bring. During the next 4 years, will the entire nation get the message? Or is it just going to be more ‘Bush’s Fault’ ?
Will someone who knows the HTML mark through commands fix this by changing, "bondholders" to public employee unions...
Thanks.
Republican legislators' feckless intransigence on tax increases combined with their refusal to offer up their own list of spending cuts irresponsibly places the state at risk of financial collapse. ..
While it was not perfect, the Democratic proposal defeated last week was a reasonable start that could serve as the starting point for negotiations. It would address $17 billion of the problem with $8.1 billion in tax increases, $8.1 billion in budget cuts and about $800 million in other solutions, such as fund transfers.
How odd that the editor refers to the Republican intransigence on tax increases as "feckless" but like a sophomoric redistributionist true believer somehow thinks that 8.1 B in tax increases would yield 8.1 billion in tax revenue.
Also, if there is any "fecklessness" in the GOP, it will be when they ... ahem... reach across the aisle and surrender, as they always do.
.
And the article blames Republicans for blocking solutions. It’s all the Republicans fault according to that view.
Why has spending in Calif. gone up faster than tax revenues? What ever happened to the state’s rainy day fund?
Why does the state have perpetual budget crises?
In the summer of 1999, California had a $12 billion budget surplus from the previous fiscal year. I know times were different then, but the point is, there hasn’t been perpetual deficit spending in Sacramento forever. Somebody is not keeping a close eye on the state checkbook, ATM, and credit card.
Next, I would turn all illegals in prisons over to the federal government. Illegals are a federal problem, not a state problem. I would announce that any illegal caught on the street would be immediately turned over to the Feds. I would deny illegals access to all state benefits and programs.
Then I would sell off-shore oil and gas permits to the energy companies, get rid of the boutique fuels and tell the CA Air Board or whatever its called and the envirowackos to take a hike and start building nuke plants.
Then I would take a hard look at the budget. I would hire an outside consulting firm to see what state departments can be consolidated or eliminated, what positions should be eliminated. I would also introduce a part-time legislature and all Governors should be term-limited to six years.
Here you go:
There is no threat that we would fail to meet our obligations to our bondholders public employee unions...
The HTML command is <strike>bondholders</strike>
LOL..ok I kinda got it.
If at first you don't succeed, try, try again. to heck with it! LOL
(Take another shot at it.)
<strike>bondholders</strike>
"From MI to CA" -- Hey, what about MA??? What are we -- chopped liver???
Thanks.
The “easy” but cowardly solution is to cut programs for the disabled and elderly. I sit on a committee for aging in the County and what this will do is force many poor elderly out of their homes and into nursing homes at the public’s expense.
Another favorite target is poor rural Counties. If you bankrupt a General Law County, the state will end up holding the bag.
We need to look at our regulatory situation. Regulations, particularly endangered species, land, air and water, are so stringent that businesses are moving out of the state in droves. It costs hundreds of times more and takes many months more time to get a permit to log in California than it does in “Green” Oregon.
We create enormous bureaucracies, such as the regional water boards, and march out a steady stream of land use policies such as Total Maximum Daily Loads, and Riparian and Wetlands policies and sediment policies. This requires the hiring of dozens of new staff to enforce. Let’s start cutting there.
Look at the Gov.’s Global Warming Initiative. Do we need to rip out every diesel engine and retrofit or replace it? Do we need to implement regional “smart growth” policies oin land use? Do we really need to choke our citizenry in so much expensive red tape and build these gigantic permit systems and bureaucracies?
Increasing the sales tax is business death to border counties. Oregon pays NO sales tax. How many people are going to shop in California if they are anywhere near another state’s border?
HOW TO SAVE $BILLIONS:
1. Cut out ALL native-language subject teaching, and require mandatory English-only instruction for all subjects (EXCEPT foreign languages).
2. Fire ALL the teachers that had been engaged in this wasteful practice, and immediately begin full-day English language immersion classes for all students that are below grade level in English. All such classes should include basic civics and AMERICAN government subject matter.
It's already begun. Property tax relief for the disabled and elderly was quietly eliminated in the October 2008 Budget vote. Source: CA FTB
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