(California)Governor's plan means big cuts (Schwarzenegger to slash 18% from budget)

Contra Costa Times ^ | Nov. 20, 2003 | Daniel Borenstein and Andrew LaMar

[FairOpinion]

Gov. Arnold Schwarzenegger's recovery plan will require slashing at least 18 percent from the state's budget for programs such as higher education, social services, welfare and corrections, according to a Times analysis.

After three days in office, Schwarzenegger has provided few details about where he plans to cut. But his comments and proposals so far suggest drastic reductions in almost every state-funded agency except kindergarten through twelfth grade and community college education.

Now, if voters reject his borrowing plan, he faces a $26 billion shortfall. If they accept it, about $12 billion in cuts still will be needed.

H.D. Palmer, the governor's finance spokesman, said there's no alternative to making cuts.

"If we don't start making the difficult but necessary decisions to finally get this state's fiscal house in order, life as you know it is going to change dramatically and for the worse," he said.

"It is not outside the realm of the possible that the state will run out of cash to pay its bills. We're running out of places to borrow.

[SteveH]

Oh yes, I also recall they said the finance director seemed surprised that the committee reminded her that there was an education bond proposal going up at the same time Arnold's general revenue bond proposal would go up, and that two bond proposals at the same time would tend to reduce support for each. The director seemed to be surprised and seemed to treat this as new news to her, needing to consult with her assistants before answering the question. This didn't look good on TV, or was it an act and they planned it that way? I don't know one way or another... It was shortly after this exchange that the director left the committee meeting without commenting to reporters... I think one TV camera got too close and bumped her in the face...

[Southack]

"Its not going to happen - the Democrats will NEVER vote for cuts that deep and to be fair Republicans will also blanch at the prospect."

Arnold can call a special session of the legislature until they pass some sort of budget.

Then he can line-item-veto enough out of that budget to let the state get by without running out of cash.

Alternatively, Arnold has set into place a group in Sacramento that is preparing large scale items to be directly placed onto the ballot for mass voting.

He can literally let Californians choose what they want to keep, cut, and what they want to pay for.

Both of these options bypass the Dems' lock on legislative power.

[Amerigomag]

but clearly the budget can't be cut overnight by $40B

It needs only be cut by $24B and the mechanics of that proposal has been on the table for months.

I hope California will adopt the plan. After 18 months the Democrats and the executive can go right back to supporting "our programs".

[scannell]

If he is going to cut higher education, he can start by banning "tenure" in state run colleges and forcing the professors to work only 20 hours per week instead of 6 and then firing about 2/3rd of them that won't be needed.

[FairOpinion]

Why does it surprise you that the liberal media would distort things and present Republicans in the worst light possible?

I have seen the same thing. They presented it, as if it had been terribly unreasonable for Donna to get up and walk out.

[Amerigomag]

This seems to suggest that the portion of the soon-to-be-illegal "deficit bonds" which have already been sold

The bonded indebtedness was approved by the legislature and Gray Davis but the bonds have not yet been sold. Their sale is being challanged in court and thus far $3B+ have been ruled unconstitutional and another $12B may soon go the same direction (can't be sold).

Additionally there is no appetite (market) for these bonds unless California can identify a seperate revenue stream (massive budget cuts or new taxes)to secure the bonding offer.

If your from Rio Linda that means that no one is particularly intrested in buying these bonds until California can demonstrate that they can pay them back

[SteveH]

It's not so surprising to me, I guess. I was however expecting a bit of a honeymoon from the media, though, as well as from the Democrats... I'd guess the media is acting from a combination of 80% ignorance and 20% bias in this particular case... (?) I did not expect it (media bias against gov. Arnold and co.) to be revealed so quickly and so blatantly...

[Publius6961]

(Schwarzenegger to slash 18% from budget)

HOORAY!

Of course you can't make up up the sort of deficit the idiot ran up in one year, but I would cut no new governor any slack whatsoever without some meaningful real spending cuts.

Let's see if this is a real cut or the usual phony one.

As for the spend and spend legislature?
Get a clue!
And start writing your resumes....

[William Tell]

Amerigomag said: "The bonded indebtedness was approved by the legislature and Gray Davis but the bonds have not yet been sold."

The article referred to "Unsold bonds originally planned to cover the deficit from the end of the 2002-03 fiscal year" in the amount of $8.2 billion. To which bonds were they referring and, if to the $12 billion dollar "deficit bonds", why is the amount mentioned smaller by $4 billion?

[onyx]

Governor Arnold, a man of his word. He's in control and he's talking action. God bless him.

[South40]

It's interesting how certain TomBots say they expected Arnold to get a honeymoon from the liberal media when certain "conservatives" won't do the same.

Sore losers.

[William Tell]

Amerigomag said: "If your from Rio Linda that means that no one is particularly intrested in buying these bonds until California can demonstrate that they can pay them back"

I am not an expert in government bonds but I have heard of a distinction between "revenue" bonds and "general obligation" bonds.

I associate revenue bonds with the state authorizing the issuance of specific bonds to be paid back from a revenue stream expected to result from the proceeds of selling the bonds.

I think that Washington state may have issued revenue bonds during the WHOOPS fiasco. The utilities who were supposed to pay back the bonds ended up in bankruptcy and the bonds could not be paid. I don't know what recourse the bondholders had to the state of Washington. There may have been no recourse.

General obligation bonds I associate with improvements to the state infrastructure such as building new schools or improving highways. These bonds, at least, are issued against the "full faith and credit" of the issuing agency.

Since Davis' "deficit bonds" were not associated with any revenue stream, I assumed that they were issued against the full faith and credit of the state of Kalifornia. There is no way for Kalifornia to continue to exist without paying these bonds. Buyers will simply not buy new bonds if any of the old bonds are not being paid. I doubt that there is even any basis for choosing among various general obligation bonds, which would be paid and which not. I would be surprised if there was any way for some general obligation bonds to be in default unless they are all in default.

Years ago I remember reading about bondholders who still expected the Soviet Union to pay off bonds issued by the Czar's regime before the revolution. I don't think these bondholders made out too well but allowing nations to default on their bonds simply because of a revolution was an economically unattractive development.

[Amerigomag]

in the amount of $8.2 billion. To which bonds were they referring and, if to the $12 billion dollar "deficit bonds", why is the amount mentioned smaller by $4 billion?

Good question. Here's the short answer. The article is poorly written.

Here's the long answer.

The $12B figure referes to the maximum authorization level of the bonds - California may sell up to $12B in bonds.

The $8.2B refers to the deficit at a point in time - the structural deficit on June 30, 2003 was estimated to be $8.3B.

[Amerigomag]

These bonds, at least, are issued against the "full faith and credit" of the issuing agency

Reasonably accurate presentation but .... when a state lacks "full faith and credit", as California is beginning to do then bond investors look at the credit.

No one is saying that California is going to crash tomorrow but large government entities do succumb to structural deficits and California is in serious trouble if it can't or won't moderate it's spending.

If the legislature continues to resist fiscal management, bond fund investors (Wall Street) will insist that structural changes be made in the way California budgets its money, or insist that California raise it's taxes or both before the investors will reccommend the bonds to their customers or add the bonds to their portfolios.

Under this senerio general obligation bonds have, for all intents and purposes, become revenue bonds.

[William Tell]

Amerigomag said: "Under this scenario general obligation bonds have, for all intents and purposes, become revenue bonds."

I understand what you are saying.

There are two points that I think are relevant and very important.

First, potential buyers of new bonds are assessing whether they want to join the pool of existing bondholders with respect to whether their payments will be timely. The state cannot promise to pay new bonds at the expense of people who are holding older bonds. I think I heard that the legislature was toying with this idea, but the economic advisors must have told them they cannot dilute the "full faith and credit" to which the existing bondholders are entitled.

Secondly, the presumed consequence of the state defaulting on its obligations is that the courts will take over the decision making. Everyone who is owed a dime by a Kalifornia in default will make a bee-line to the nearest court to have their claim paid in preference to others. The political consequences of such a development would be quite entertaining.

[Amerigomag]

There are two points that I think are relevant and very important.

Two other points.

Pay attention to the other parts of the proposal which includes the bond measure. These are designed to meet the expected demands of Wall Street before the bonds can be sold at a resonable rate.

Watch for spending limits based on economic strenght, increased taxes/fees and budget reductions including strong decreases in the proposed/forecast annual budget increases.

If the bond measure fails next March look for modifications of Prop 13 and Prop 98 (and it's omnipotent stepdaughter Prop 49)

[pointsal]

Heck....start in the attorney general's office....nothing but dead beats there..... Hi Lockyer

[Regulator]

Janetgreen already posted the answer to all this: appeal 187. If licenses for illegals are "constitutional", then laws to prevent illegals from access to taxpayer money are damn sure Constitutional.

No one is interested in gutting 13 for the benefit of the illegals. Even talking about it will cause voter backlash. If that is the proposed alternative to a defeated bond issue, then Arnold & Co. will have to retreat.

The previous governor demonstrated his mendacity by ignoring the will of the voters. The sooner that Mr. S comes to the conclusion that upholding the will of the voters is the surest way to their hearts the sooner he will guarantee his reelection. Some of us might even vote for the guy if he does that. So far, he appears to be doing the right things. Now he just has to make that giant leap: it doesn't matter what I think, it's what the voters passed.

After that epiphany, he will find the golden path to Nirvana.

[P-Marlowe]

He fired the head of California Veterans Affairs this morning. DMV head a couple of days ago was fired.

Gives a new meaning to his title of "The Terminator". :-)

[Amerigomag]

Janetgreen already posted the answer to all this: appeal 187.

There is no doubt that illegal immigration and it's consequences are the primary causal factor for today's economic turmoil in California. Not the dot.com bust, not the downturn in the economy, not the runaway legislature but illegal immigration and it's consequences.

Restore the tech sector in California and our economic woes will still continue. Improve California's business climate and the new revenues will soon be gobbled up by these immigrants and three genrations of their progeny. Elect a conservative legislature and the existing, minimum, essential saftey nets (education, health care, the legal system and the infrastructure) will still be overwhelmed by the geometrically increasing, illegal immigrant derived population.