OS ANGELES, May 11 — The fury of last year's dot-com bust may be fading from memory, but its effects are proving far more severe than anyone had predicted even a few months ago, state officials and economists say. Posted on 05/11/2002 4:13:28 PM PDT by sarcasm
OS ANGELES, May 11 — The fury of last year's dot-com bust may be fading from memory, but its effects are proving far more severe than anyone had predicted even a few months ago, state officials and economists say.
Gov. Gray Davis and state finance officials are to release updated figures for the state budget on Tuesday, and economists are predicting that they will show a potentially catastrophic deficit of $20 billion to $25 billion for the current fiscal year, which ends June 30, and the next.
The shortfall could well force the state and local governments to slash an array of services, including police protection and mental health, state and local officials say. The California Legislature is expected to spend most of the summer in a brutal political battle over who will have to sacrifice the most.
Nearly every state has budget problems, but California's potential deficit is larger than the entire budgets of most states. California's general budget is about $80 billion.
State finance officials began expecting a problem months ago, given the downturns in the technology industry and the stock market. In January they predicted a shortfall of $12.5 billion. Now, with most tax returns tallied, the figures have mushroomed. The principal cause, the officials say, is not the overall economic malaise, or even the terrorist attacks, but plunging tax revenues from stock options and other capital gains, which evaporated when the dot-com bubble burst last year.
The total income reported by California taxpayers from stock options and capital gains rocketed to roughly $200 billion in 2000 from $25 billion in 1994, state officials say. Then last year it fell to less than $70 billion, a decline that will reduce state tax revenues this fiscal year by $11 billion to $15 billion.
"Everyone was taken by surprise," said Kathleen Connell, the state controller, who has been forced to prepare an extraordinary $7.5 billion short-term bond offering next month to close the state's financial gap. "The diminished revenue was startling. And we don't see this as a single-year problem."
In recent weeks, local governments and their lobbyists in Sacramento have been scrambling to find ways to protect basic services and prevent the state from forcing the localities to absorb the brunt of coming budget reductions.
Making matters worse, the problem has surfaced in an election year, when the governor and the Legislature will be particularly reluctant to make painful budget cuts or to raise taxes. Those constraints have put many officials in the awkward position of both playing down the severity of the problem and stressing that it will require extraordinary measures to fix.
"It's not a crisis," said Tim Gage, director of the Department of Finance. "It's a significant challenge. No one really saw what the magnitude of that drop was going to be. The problem is to close the gap with the least damage, to cushion the otherwise devastating impact if we just made the cuts directly to programs."
Local governments are particularly vulnerable because they have two basic sources of income, local taxes and tax revenues passed down from the state, and many localities expect to be hit on both fronts.
For example, Santa Clara County, which includes Silicon Valley, faces an $85 million budget gap because of plummeting revenues from things like property transfer taxes, sales taxes and vehicle license fees.
Unemployment has gone to 7.7 percent from less than 1 percent two years ago, and now the government is preparing for potentially steep reductions in the money it receives from the state, which accounts for 43 percent of its annual revenues.
"I've been doing this for 26 years, and I've never seen anything like this in terms of how quickly things have turned," said Richard Wittenberg, the county executive. "It's been a free fall, and we haven't had much time to prepare."
He said services like health care, a program providing health insurance for children and welfare programs were likely to face cuts.
Richard Averett, finance director for the tiny city of San Carlos, south of San Francisco, said he was preparing for cuts in recreation, senior programs, the library system and police protection.
Even rural counties are expecting the worst. Fresno County, for instance, in the San Joaquin Valley, is concerned about potential cuts in state fire protection in its forests. Los Angeles County, which has nearly 10 million people, is particularly concerned about potential cuts in the money it receives for its extensive health programs, which focus on the burgeoning immigrant community.
Butte County, in Northern California, is one of the poorest in the state and has been on the verge of bankruptcy for years. Officials there worry about even modest cuts.
"We're in no position to bail anyone out," said Paul McIntosh, the chief administrator for Butte County. "We're just hoping we'll have some flexibility in how we can deal with this because we don't have anywhere else to dig."
The only time the state came close to this situation was in the early 1990's, when there were rampant layoffs in the aerospace industry. The revenue shortfall reached $14 billion in fiscal 1991, a gap that was closed, in large measure, by taking money away from local governments.
The problems are a reminder of just how unusual the 1990's were in California. While poor and working class immigrants flooded into the state, the wealthiest residents simply grew wealthier, laying the groundwork for the current problem.
The top 5 percent of taxpayers accounted for 22 percent of total personal income in California in 1980. By 2000, the top 5 percent of taxpayers — with gross incomes of $150,000 or more — accounted for 42 percent of total personal income.
When the stock options and portfolios of that tiny slice of the population collapsed, so did the state budget.
State officials are not in the business of making stock market forecasts, but they are working hard on their economic predictions and they expect little relief soon.
"If there is no real economic growth until the end of the fourth quarter, there will be no revenue growth to help out on next year's budget," said Ms. Connell, the state controller. "We could be dealing with this for three or four years."
You lose all credibility when you make those sorts of extremist comments. Yes, the Left has been engaged in an organized campaign to break up American families and destroy core American values, but that has nothing to do with President Bush. His pro-Mexican policies are creating jobs in Mexico, which encourages Mexicans to STAY in Mexico. Being anti-Bush or anti-NAFTA just means that you want more Mexicans coming into the U.S. in search of job opportunities (because they won't be in Mexico). But even job opportunities aren't the problem. Immigrants who want to work aren't the problem. The problem is with those who come over for free education, medicine, as well as welfare handouts. Heck, I'll gladly take the workers, especially if the education/welfare seekers are de-incentized.
Sounds serious. < /sarc>
Ol' Gray Davis is gonna need all the cops he can get.
Just to keep the nuts outside the walls at bay; forget about the ones that'll be turned loose.
I see the illegal immigration angle you're working here, sol2.
You make good points, *all*.
Still...
Californians --& that goes DOUBLY for the Rob Rieners, Chers, Speilbergs, their LIBERAL pols & hundreds more just like 'em -- wrought this pox upon on themselves.
Honestly?
I've an extremely tough time finding any sympathy whatsoever for their predicament.
Sorry.
They asked for it: they got it.
That simple.
...I actually find bearing witness to this rare instance of *poetic justice* strangely refreshing, at that.
Think of the BILLIONS that would save.
1. The Kalifornian government, controlled by democraps, has spent the state until it is broke on social welfare programs;
2. It's refusal to acknowledge the borders, and by it's calling anyone who wants the borders enforced "racists," illegal immigrants have flooded over in order to get a piece of all that money the Kalifornian government spent on social welfare programs;
3. The huge taxations and utter hatred of anybody who has made a success of themselves in Kalifornia, businesses, corporations, and employers can't afford to hire, causing one of the highest unemployment rates in the nation;
4. Now that they are going to have to lay off thousands of police officers, after they have disarmed the populace with all of their "common sense gun safety measures," crime is going to run rampant.
In conclusion, I just hope that the rest of the nation learns from Kalifornia's mistakes and returns to voting those into office with core conservative agendas and ideas.
A very good point. The time has come to think the unthinkable: paraphrasing the classic Ann Landers question, would the rest of America now be better off with or WITHOUT California?
Consider: if California were tomorrow no longer a part of the U.S.A., would our resulting nation be more or less conservative? Given the oversized "weight" of California's influence in national politics, how would the balance of power change if California were suddenly no longer a part of that game?
With the Mexican "reconquista" well in progress, it is all but inevitable -- given demographics and the cultural devolution brought about by the immigrant invasion -- that, eventually, California WILL become a default colony of Mexico. The same may be said for Arizona, New Mexico, and the south of Texas. But whatever is going to happen, is going to happen FIRST on the west coast.
Postponing the inevitable drags the rest of the country down in the meantime.
- John
Likewise when you have a bill to restrict welfare benefits to illegal aliens passed by an overwhelming majority of the state and then shot down by a single Klintler judge ('we don't need no stinkin democracy...') and the reconquisters doing high-fives and talking about that being the last gasp of white America in the place, the only thing I'd know to do that didn't involve civil war or insurrection would be to get out a map of the US and start looking for other places to live.
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There is some middle-class justice in all of this. Middle-class movers are going to become fabulously wealthy as masses of people move from LA. If ever there was a business opportunity of a lifetime for a low-tech job, moving people out of LA has got to soon be on the list of the top ten.
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