OT: The California Budget Crisis

  • Posted: 24 May 2009 03:01 PM

    California’s in a real bind. Voters rejected a slate of tax increases. The election outcome will force deep cuts in state spending. Ironically, by failing to agree on spending cuts, the Democratic majorities in the state legislature gave Republican members exactly what they’ve wanted - deep cuts is state-funded programs. Although Democrats have huge majorities in both houses of the state legislature, two-thirds majorities are required to pass the annual budget and voter approval is needed to raise most taxes.

    Voters overwhelming rejected tax increases last week. What’s the lesson to be learned here?

    The governor is now forced to order deep cuts in state-funded programs to close the budget gap.

    Here’s something to consider: While the Federal stimulus program continues unabated, states are grappling with budget deficits and taxes are already rising in many states and municipalities. Is the state of the states and the resulting state and local tax increases working against the Federal stimulus plan?

    Will the Federal government come to the aid of states after the one-time distribution of stimulus funds has been exhausted?

    Eventually Federal taxes will need to be raised. What’s the eventual economic impact of the Federal government and state and local governments coming after the same pocketbooks to raise government funds?

         
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    Posted: 24 May 2009 03:36 PM #1

    DawnTreader - 24 May 2009 06:01 PM

    California’s in a real bind. Voters rejected a slate of tax increases. The election outcome will force deep cuts in state spending. Ironically, by failing to agree on spending cuts, the Democratic majorities in the state legislature gave Republican members exactly what they’ve wanted - deep cuts is state-funded programs. Although Democrats have huge majorities in both houses of the state legislature, two-thirds majorities are required to pass the annual budget and voter approval is needed to raise most taxes.

    Voters overwhelming rejected tax increases last week. What’s the lesson to be learned here?

    The governor is now forced to order deep cuts in state-funded programs to close the budget gap.

    Here’s something to consider: While the Federal stimulus program continues unabated, states are grappling with budget deficits and taxes are already rising in many states and municipalities. Is the state of the states and the resulting state and local tax increases working against the Federal stimulus plan?

    Will the Federal government come to the aid of states after the one-time distribution of stimulus funds has been exhausted?

    Eventually Federal taxes will need to be raised. What’s the eventual economic impact of the Federal government and state and local governments coming after the same pocketbooks to raise government funds?

    States wrote checks and made commitments that depended upon the party continuing.  Now that the party is ending, the states will have to confront organized labor.  This will be difficult because unions only know how to fight one battle - get more more more.  So the municipalities and states will fight the easier battles first and confront the unions last.  Eventually, firefighters in Cali will probably lose their $150K+ pensions but temp workers and non-union labor will go first in all likelihood.

    The lesson to be learned (nationally methinks) is don’t spend it when you’re making it.  Apple is a great example of this (man that’s just SUCH a well-run company!).

    The bond market is telling the Feds to forget about bailing out the states.  The Feds know there are many states in bad shape so there’s probably no way they bail out Cali knowing that NY, IL, NJ, NV, Fl etc. are all in line.  Actually, I think most bailouts will stop in general before long.

    Taxes will rise all over the place (not just federally) and this will put a damper on discretionary spending over the next few years IMHO.  If dollar devaluation forces oil and food up, you may see extensive non-essential service cuts.

    The thing that bothers me most is that the ridiculous unionized pensions are being addressed last (because it’s ‘difficult’) while education and teaching is being slashed all across Cali.  The one thing this country can least afford is to reduce the quality of its education.  We’ve been dumbed down enough already.  With the legalization of drugs seemingly inevitable, and moral decay on the rise (again, IMO), where are we headed as a country?

    EDIT:  Also…public sector jobs are at record highs in terms of % of overall workforce.  This is problematic as I think public sector jobs will have to be reduced forcing an increase in unemployment.  This is the problem with a system soaking in debt.  There’s nowhere to turn.  As layoffs rise, bond ratings fall, funding dries up and tax receipts dwindle.  I think the only way out of this is debt default and a much smaller federal gvmt.  Unfortunately, that will be a small nightmare to endure.

    [ Edited: 24 May 2009 04:00 PM by Mayor Quimby ]

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  • Posted: 24 May 2009 04:09 PM #2

    The thing that bothers me most is that the ridiculous unionized pensions are being addressed last (because it?s ?difficult?) while education and teaching is being slashed all across Cali.  The one thing this country can least afford is to reduce the quality of its education.  We?ve been dumbed down enough already.  With the legalization of drugs seemingly inevitable, and moral decay on the rise (again, IMO), where are we headed as a country?

    I don’t have any knowledge of where California’s budget problems lie but Minnesota is in much the same financial condition as is the country.  Sooner or later we’re going to need some national consensus about the wisdom of investing our country’s wealth in the aged for medical care or the youth and our future.  This doesn’t just mean education (though that’s a large slice) but the infrastructure of our country to keep them competitive.  As for societal decay…,it’s a field of thought that I’m not sure I concur with.  The war on drugs has been lost (prohibition included) and just promotes more disrespect for our lawmakers and the legal system.  It costs huge sums to incarcerate those that are in jail for drug related offenses.  It’s what has enabled the rise of gangs (from Capone to present day) and hasn’t really solved any of the drug related problems.  I would like our focus to shift elsewhere.  In a really broad view I feel that the moral standards of this country have risen dramatically in my lifetime.  I’m specifically referring to our treatment of women, minorities and the young.  I’m also pretty bullish about human sexuality coming out of the closet and hope I live to see the day when it’s more acceptable to see naked people on primetime and less to see constant violence.  Just my penny and a half.

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    Posted: 24 May 2009 04:42 PM #3

    Mayor Quimby - 24 May 2009 06:36 PM

    The thing that bothers me most is that the ridiculous unionized pensions are being addressed last (because it’s ‘difficult’) while education and teaching is being slashed all across Cali.  The one thing this country can least afford is to reduce the quality of its education.  We’ve been dumbed down enough already.  With the legalization of drugs seemingly inevitable, and moral decay on the rise (again, IMO), where are we headed as a country?

    Pensions are a tough quagmire; individuals have contributed or forwent parts of their income based on promises made for their retirement. The current or near retirees no longer have the means to earn income and are relying on the promises made for their care. In many respects it is easier to take money from education since the families that are supporting the children are often in the prime of their earning lives. Further, reducing the pensions would most likely put the burden of care back onto the working families. 

    The challenge, as has been noted, is governments have been a poor steward of the tax dollars earned. And claims have been made on tax dollar surpluses to provide additional services rather than making tough choices about what the government should provide and potentially “saving” the surplus into a rainy day account.  Now we are at a point of rapidly diminishing tax revenue after a time of massive increases in tax dollar spending due to these perceived surpluses. And increasing tax revenue via increased tax rates has been rejected in CA since most CA’s know that the tax rates will never go down and expenditures will only rise if there is a surplus in future years.

    Of course one of the biggest issues is the speed that the economy changed direction. Like the volatile daily shifts in the stock market, it is hard for governments to quickly react to the change in the economy.

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    Posted: 24 May 2009 06:14 PM #4

    BillH - 24 May 2009 07:09 PM

    The thing that bothers me most is that the ridiculous unionized pensions are being addressed last (because it?s ?difficult?) while education and teaching is being slashed all across Cali.  The one thing this country can least afford is to reduce the quality of its education.  We?ve been dumbed down enough already.  With the legalization of drugs seemingly inevitable, and moral decay on the rise (again, IMO), where are we headed as a country?

    I don’t have any knowledge of where California’s budget problems lie but Minnesota is in much the same financial condition as is the country.  Sooner or later we’re going to need some national consensus about the wisdom of investing our country’s wealth in the aged for medical care or the youth and our future.  This doesn’t just mean education (though that’s a large slice) but the infrastructure of our country to keep them competitive.  As for societal decay…,it’s a field of thought that I’m not sure I concur with.  The war on drugs has been lost (prohibition included) and just promotes more disrespect for our lawmakers and the legal system.  It costs huge sums to incarcerate those that are in jail for drug related offenses.  It’s what has enabled the rise of gangs (from Capone to present day) and hasn’t really solved any of the drug related problems.  I would like our focus to shift elsewhere.  In a really broad view I feel that the moral standards of this country have risen dramatically in my lifetime.  I’m specifically referring to our treatment of women, minorities and the young.  I’m also pretty bullish about human sexuality coming out of the closet and hope I live to see the day when it’s more acceptable to see naked people on primetime and less to see constant violence.  Just my penny and a half.

    I suppose the moral issue is really OT.  But whatevs as they say on tv - I started it after all so I take full blame.

    Nudity does not represent societal growth IMO BillH.  After all, we were nude for millions of years but we didn’t have a pot to piss in!  We’ve made great strides with regards to women’s rights and racism however so point well taken.  But as regards sexual freedom, we’ve seen increases in the % that carry STD’s, a growing divorce rate (recently declining a bit however) and a reduced birth rate (people having fewer children per family).  Educational standards have fallen dramatically and I’d argue that Americans have a much weaker sense as to where the line between right and wrong is.  I’m not going near abortion or torture or capital punishment.  So perhaps I misspoke - morality has changed significantly.  I guess we all have our own opinions as to whether things are better or worse.

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  • Posted: 24 May 2009 07:55 PM #5

    Nudity does not represent societal growth IMO BillH.

    I probably should have been more lucid as to what my point was so I’ll take another wack at it.  Our human sexuality, rather than being celebrated, still has elements of shame attached to it by many within our culture.  Our violent leanings are pandered to consistently and often.  This has always struck me as backwards and amoral.  As far as morality being off topic goes, it may be the reverse.  How we go about deciding what is and isn’t the realm of the government will bring into focus morality as it never has before.  Will it be moral for the state to pay for organ replacements for the elderly and to what age?  What if it means cutting back further on the schools?  Will life and limb extension only be available to the wealthy?  It’s going to be the most philosophical century in the history of mankind as we face these and larger issues.  I’m looking forward to it for the species…not so much for the potential to rip apart our culture in ways we haven’t even considered.

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    Posted: 24 May 2009 10:49 PM #6

    Sorry, your right to go nude in public is not California’s problem. But This is.

    Is there any wonder that California is right now in a fiscal crisis emergency with a budget deficit greater than $14 billion and growing? Reliable estimates calculate illegal aliens cost the state $10.5 billion each year! So what?s Schwarzenegger?s solution? A 10 percent across-the-board reduction in state agency funding, transferring $2 billion in spending to the next fiscal year and increasing taxes. Why not cut all public services to those not in the U.S. legally? Just a simple thought on my part that would go a long way to putting California back on its feet. A bell should be ringing in all American heads about right now that tells you this is what is coming throughout our country if you refuse to act. You must demand from your politicians that they conduct Comprehensive Immigration ENFORCEMENT not Comprehensive Immigration Reform amnesty.

    California started down this road when they refused to listen to the voters.

       

    In November 1994, Californians passed an initiative, Proposition 187, cutting off some health and social services, including access to public education to illegal aliens and their children. That initiative was put on “hold” by a federal court, but the vote helped set the stage for a national debate on immigration and major legislation in Congress.

    Note that the “Court” overturned the will of the people.But, California would have found itself in a similar position, even without the national economic down turn. With the ever increasing tax and regulation burden, which drives off the producers of wealth, you are left with the non-producers that feed on resources until there is nothing left. But politicians are not concerned about the “economic condition” of those that vote for them, only that they are voted for.

    Anyone want to bet that the “courts” overturn the will of the people again about this last proposition on taxes. Enough is enough.

    :apple:

         
  • Posted: 24 May 2009 11:41 PM #7

    MacCube - 25 May 2009 01:49 AM

    Sorry, your right to go nude in public is not California’s problem.

       

    So…,we’re just making stuff up now?

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    Posted: 24 May 2009 11:44 PM #8

    How does moral issue affect AAPL share price?

    Anyhoo, equality and fairness in one area (local) usually doesn’t mean global equality if one exist.  For example, for equality and fairness, the poor should has equal rights to an organ as the wealthy, and state has to fund the surgery for the poor. But is it fair for taxpayer to fund the surgery?  There is a cost for state funded programs.  The problem is there are too many of such state funded programs.  A line has to be drawn.

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    Posted: 25 May 2009 12:52 AM #9

    Mayor Quimby - 24 May 2009 06:36 PM
    DawnTreader - 24 May 2009 06:01 PM

    California’s in a real bind. Voters rejected a slate of tax increases. The election outcome will force deep cuts in state spending. Ironically, by failing to agree on spending cuts, the Democratic majorities in the state legislature gave Republican members exactly what they’ve wanted - deep cuts is state-funded programs. Although Democrats have huge majorities in both houses of the state legislature, two-thirds majorities are required to pass the annual budget and voter approval is needed to raise most taxes.

    Voters overwhelming rejected tax increases last week. What’s the lesson to be learned here?

    The governor is now forced to order deep cuts in state-funded programs to close the budget gap.

    Here’s something to consider: While the Federal stimulus program continues unabated, states are grappling with budget deficits and taxes are already rising in many states and municipalities. Is the state of the states and the resulting state and local tax increases working against the Federal stimulus plan?

    Will the Federal government come to the aid of states after the one-time distribution of stimulus funds has been exhausted?

    Eventually Federal taxes will need to be raised. What’s the eventual economic impact of the Federal government and state and local governments coming after the same pocketbooks to raise government funds?

    States wrote checks and made commitments that depended upon the party continuing.  Now that the party is ending, the states will have to confront organized labor.  This will be difficult because unions only know how to fight one battle - get more more more.  So the municipalities and states will fight the easier battles first and confront the unions last.  Eventually, firefighters in Cali will probably lose their $150K+ pensions but temp workers and non-union labor will go first in all likelihood.

    The lesson to be learned (nationally methinks) is don’t spend it when you’re making it.  Apple is a great example of this (man that’s just SUCH a well-run company!).

    The bond market is telling the Feds to forget about bailing out the states.  The Feds know there are many states in bad shape so there’s probably no way they bail out Cali knowing that NY, IL, NJ, NV, Fl etc. are all in line.  Actually, I think most bailouts will stop in general before long.

    Taxes will rise all over the place (not just federally) and this will put a damper on discretionary spending over the next few years IMHO.  If dollar devaluation forces oil and food up, you may see extensive non-essential service cuts.

    The thing that bothers me most is that the ridiculous unionized pensions are being addressed last (because it’s ‘difficult’) while education and teaching is being slashed all across Cali.  The one thing this country can least afford is to reduce the quality of its education.  We’ve been dumbed down enough already.  With the legalization of drugs seemingly inevitable, and moral decay on the rise (again, IMO), where are we headed as a country?

    EDIT:  Also…public sector jobs are at record highs in terms of % of overall workforce.  This is problematic as I think public sector jobs will have to be reduced forcing an increase in unemployment.  This is the problem with a system soaking in debt.  There’s nowhere to turn.  As layoffs rise, bond ratings fall, funding dries up and tax receipts dwindle.  I think the only way out of this is debt default and a much smaller federal gvmt.  Unfortunately, that will be a small nightmare to endure.

    Maybe they’ll divide California into two: Good Cali and bad Cali.  :wink:

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  • Posted: 25 May 2009 01:43 AM #10

    Eric Landstrom - 25 May 2009 03:52 AM

    Maybe they’ll divide California into two: Good Cali and bad Cali.  :wink:

    Actually, there’s been much serious discussion over the years about splitting California into two states - Northern California and Southern California. One issue is where to draw the line. In terms of dollars, California is the largest agricultural state in the nation. To keep the bulk of the agricultural interests in one state, Southern California would be comparatively small geographically but still have most of the post-split population. Northern California would have the vast San Joaquin Valley. Splitting the state geographically in half would be more problematic.

    In either case, the state still needs to grapple with a multi-year budget dilemma that is getting uglier by the day. I’m surprised more action hasn’t already been planned since the governor and legislators knew well before the recent election the proposed tax increases would not be supported by the electorate.

         
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    Posted: 25 May 2009 09:42 AM #11

    One ....

    Who CARES if CA goes belly up?

    When you are living in the la la land, don’t come running to the REST of the country, cause your paradise of porn, pretend, and parties ran out of money.

    YOU GUYS elected “The Terminator” as Gov, so let him TERMINATE the party, and start living like the REST OF US have for decades now.

    Or do you think WE, should lower OUR standards of living, even more, so la la land, can party hearty for another decade or two?

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    Posted: 25 May 2009 12:10 PM #12

    DawnTreader - 25 May 2009 04:43 AM

    Actually, there’s been much serious discussion over the years about splitting California into two states - Northern California and Southern California.

    According to Wikipedia attempts to divide CA started as early as 1854. I remember as a student at UCLA, folks were arguing for dividing CA into 3 states, or 2 new states (Central including SF and Southern)  with the northern section joining OR.

    TanToday - 25 May 2009 12:42 PM

    One ....

    Who CARES if CA goes belly up?

    Ummm. . .we all should. CA is a net contributor to the Federal Budget with CA only receiving $0.80 of every tax dollar. (see here).  Also by looking at those tables, CA provides over 13% of the Federal Tax Revenue.

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  • Posted: 25 May 2009 12:15 PM #13

    TanToday - 25 May 2009 12:42 PM

    YOU GUYS elected “The Terminator” as Gov, so let him TERMINATE the party, and start living like the REST OF US have for decades now.

    Actually, we refer to him as the “governator.” He was elected in the recall of the previous occupant of the governor’s office by running on a platform of tax cuts and budget reform. One issue that impacts the state’s finances is California receives back about $.79 for every dollar sent in federal taxes to Washington. Essentially California has been financing federal budget largesse for years.  In other words, California has been subsidizing Washington. That should stop.

    The state has the most progressive state income tax in the nation. In the last year of the tech boom, for instance, 24% of general fund tax receipts came from the top 1% of taxpayers. When the tech industry has a good year California has a good year. When the tech industry doesn’t have good years you can see the results. To help balance the state books California has eliminated the dependent exemption for children on state income taxes. This is designed to increase state income tax receipts from millions of households so the state is less dependent on high-income taxpayers but this makes it much harder for working families to make ends meet.

         
  • Posted: 25 May 2009 03:32 PM #14

    Eric Landstrom - 25 May 2009 03:52 AM

    ...
    Maybe they’ll divide California into two: Good Cali and bad Cali.  :wink:

    I have long advocated giving all of California south of the Golden Gate Bridge to Mexico, retaining only 250-year leases on military installations and 30-year leases on defense industry manufacturing facilities.  In exchange Mexico would guarantee the property rights of private citizens and corporations, agree to apply California law for a period of three years, cooperate in terminating illegal immigration, agree to free trade and to residents right to conduct their affairs in English if they so choose.

    The U.S. government would also assume existing obligations of the former State of California, such that both the new U.S. State of Shasta and the new Mexican State of California start off with a clean slate and retirees are not left holding an empty bag.

    Most everyone thinks this idea is too crazy to even discuss.  But if they did discuss it, they might point out that such an arrangement would ruin Apple and all the rest of silicon valley.  I think not.  Once Mexico had such an asset, would it not do all in its power to retain it?  Would not they initiate reforms to keep these jewels form moving to Sacramento or Reno?  And would not a reformed, prosperous Mexico be good for the U.S.?

    This would not only have the benefit of making current day Mexico much stronger, but it would enable solving the immigration issues, and redress a 161-year-old wrong.

    (While we are at it I would also give Alaska and Hawaii their independence subject to similar terms.)

         
  • Posted: 25 May 2009 03:53 PM #15

    Mexico indeed could attempt to keep the golden goose laying but they would fail. As they have failed for generations to unleash the innate potential of their own population. If the example of a free, educated, productive population to their north has been invisible to them how could they deal with the reality of managing a system so unfamiliar? For that matter the US congress, having little practical experience with managing productive assets, may do no better for this country than Mexico has done for theirs.