California: Trailblazing the Road to Insolvency for the Rest of Us?

It appears as though we'll be getting out of the Golden State in the nick of time as the fallout from the likely rejection by voters of most May 19th ballot initiatives is set to make things a whole lot worse for California's budget.

The Sacramento Bee reports on the relentless deterioration in the state's finances since the last budget bill was passed a few months back, one that really just forestalled the inevitable.

California's projected budget deficit has grown as large as $21.3 billion through next June because of a sharp economic decline, Gov. Arnold Schwarzenegger disclosed Monday in a letter to legislative leaders.

The latest projection means lawmakers will have to negotiate deep spending cuts in education, corrections and welfare as well as consider borrowing and new fees or taxes.

The announcement comes less than three months after the Legislature and the governor closed $34 billion of a then $40 billion state budget deficit with tax hikes and spending cuts and asked voters to eliminate the rest in next week's special election.

These "new" estimates will probably turn out to be just as overly optimistic as every previous forecast and once again, the state of California is blazing a trail for the rest of the country, this time on the road to insolvency.

There is more than a little irony in the Gubernator being voted into office some six years ago when his predecessor had similar problems that, in retrospect, look like a walk in the park by comparison, unless of course another housing bubble is in the offing.

New plans are being prepared to close the new budget gaps.

The governor did not disclose his solutions Monday. But he warned groups last week he will consider borrowing $2 billion from cities and counties, releasing low-level offenders in state prisons and reducing school funding by $3.6 billion. The state also could eliminate its planned $2 billion reserve.

"It's well beyond triage," said Senate President Pro Tem Darrell Steinberg, D-Sacramento. "We're talking about painful and difficult decisions. You can't just finesse your way through $15 billion or $21 billion."

It's odd how $15 billion or $20 billion really doesn't sound like a lot of money anymore...

Here's one way the state might be able to generate new revenue. After having been talked about for some time now, momentum is building to somehow find a way to tax marijuana (presumably, after legalizing it) as reported by the U.K. Guardian.

Arnold Schwarzenegger has never apologised for smoking pot – and loving it — at the height of his bodybuilding career in the 1970s. Now, as a struggling Republican governor of California reaching a crossroads in his political career, he might yet become America's most visible advocate for legalising marijuana.

The actor-turned-politician gladdened the heart of every joint-roller and dope fiend across the Golden State earlier this week when he said it was time for a full debate on legalisation.

Schwarzenegger was careful not to say too much – he stopped short of saying he was in favour of legalising cannabis now – but his words broke a long-standing taboo among both Republicans and Democrats who have previously felt obliged to say marijuana must remain illegal, and marijuana users and pushers be subject to criminal prosecution.

The governor spoke in response to a new public opinion poll showing that 56% of registered voters in California favour legalising and taxing marijuana – in part to help the state out of the worst budget crisis in its history.

If they ever do such a thing, this California trend is likely to meet with some resistance in many other parts of the country.

Comments

[The Geoffster:]

Right you are Cetin. The fruits of modern liberalism.


On May 12 02:31 PM Cetin Hakimoglu wrote:

> California is an economic powerhouse, but it's being drained by free
> heath care, universal education, welfare programs, and bureaucracy.

May 12 07:15 PM

[The Geoffster:]

Pot smokers don't bother me, fetus killers don't bother me, gays don't bother me, people who look different than me don't bother me, religious people don't bother me. In fact, nobody bothers me until they try to prosthelytize me, tax me, harm me, illegally confine me or my family. California got what they asked for and now it's coming for the rest of us. This is what happens when you put your trust in government. Live free or die.

May 12 07:33 PM

[dybydx:]

Whatever happened to same sex marriage?

On May 12 07:07 PM Michael_Cohen wrote:

> Wow, legalizing and taxing marijuana. The first sane, pro-freedom
> thing from California in years
>

May 12 07:34 PM

[2houndz:]

Finally I agree with Cetin on something.

Hey, wait a minute - aren't those the same items the the current Federal executive and legislative branches have on their agenda for all of us? Is that what Tim means by "Trailblazing"?


On May 12 02:31 PM Cetin Hakimoglu wrote:

> California is an economic powerhouse, but it's being drained by free
> heath care, universal education, welfare programs, and bureaucracy.

May 12 08:05 PM

[EEB:]

What do you mean by "universal education"? K-12 publics are free, but public colleges in California are not. Tuition might be lower than in some states, but how is that "universal education"?


On May 12 02:31 PM Cetin Hakimoglu wrote:

> California is an economic powerhouse, but it's being drained by free
> heath care, universal education, welfare programs, and bureaucracy.

May 12 09:20 PM

[EEB:]

Why are their children illegitimate? Illegal immigrants can't be married? And if you are so concerned about illegals why don't you argue for fining and jailing employers who hire them? They are criminals just as much as the illegal immigrants. If we did that, then the jobs for illegals would disappear overnight and the illegals would go home soon after that. It's strange how everyone wants to tackle the supply side of things and not the demand when it comes to illegal immigrants. That strategy is a disaster, just as it is with illegal drugs.


On May 12 03:07 PM Gaucho wrote:

> What the hell, let 5-8 million illegal immigrants into the state?
> Give them welfare for their illegitimate children. Provide Medicaid
> and Medicare for anyone willing to cross the border. Have the illegal’s
> drive down the wages while they and the people they work for pay
> no taxes and what the hell do you expect. But I shouldn't say that
> since it would be ist or ism and violate some PC rules that say you
> can't say that.
> But you must remember these folks are heroes for working for 10-15
> dollars an hour and having the government pay for their children’s
> health care while they could be working for 5 dollars a day south
> of the border.
> And where is the Mexican government our amigo? Why aren’t the criminal
> illegal aliens rotting in their jails instead of ours for 50K per
> year. Why aren’t they volunteering to take and imprison these criminals?
> What do they make up, 30-40% of the total state prison population?
>

May 12 09:26 PM

[Missing_Link:]

Great article, Tim.

Any postulations that the rally since March 6 can continue moving upward indefinitely needs to take into account the massive ticking time bomb that is California.

One very inconvenient truth that's often overlooked about California is that the state has massive seismic risks exactly in the most overpopulated areas. Both the Bay Area and the LA area have a terrifyingly high probability of a major earthquake, either one of which would be incredibly costly both in terms of human casualties and unpayable costs.

For example, here's the Wikipedia entry for the Hayward fault. There is a 62% chance -- yes, BETTER THAN EVEN ODDS -- of a major quake happening on one of the fault lines in the Bay Area, and the cost is estimated at $1.5 trillion in damage.

en.wikipedia.org/wiki/...
earthquake.usgs.gov/re.../

Here's the OFFICIAL website pointing out the risk on a major quake in the LA area, with a likely estimate of $200 billion of damage:

shakeout.org/scenario/

Combine this earthquake scenario with the Bay Area scenario, and you have a roughly 3 out of 4 change that either one or both of these scenarios will play out in the next 30 years -- costing California several times its already-absurd budget and quite possibly throwing itself and the entire USA off a financial cliff.

May 12 09:27 PM

[The Geoffster:]

Socialism doesn't work. Try Jesus. Or maybe, just get off your ass, get educated and don't have babies you can't afford. I'm going to stop creating jobs for you if you're just going to take all my profits away.
www.nytimes.com/2009/0...

May 12 09:40 PM

[beenburnedt...:]

Can we tax that?


> Whatever happened to same sex marriage?
>
> On May 12 07:07 PM Michael_Cohen wrote:

May 12 10:02 PM

[beenburnedt...:]

Out of your 2065 comments on SA this is the first time I agree with you.

On May 12 02:31 PM Cetin Hakimoglu wrote:
> California is an economic powerhouse, but it's being drained by free
> heath care, universal education, welfare programs, and bureaucracy.

May 12 10:05 PM

[Alan Young:]

Well, somehow the rest of the civilized world manages to pay for health care, education, and social safety nets without going bankrupt. Maybe it has to do with -- brace yourselves -- making sure that the government has enough revenue to fund these essential services, before deciding to give out tax breaks.

California has a horrible record of decision-making when it comes to taxes. We have the most expensive real estate in the lower 48, even after the bubble-burst; so the price of everything is proportionately higher. Yet the amount spent per pupil on education is 47th in the U.S.!!!! That is not "too much spending." It is too little spending. And why is real estate so pricey? Because it comes with a locked-in guarantee of NEGATIVE tax adjustments--that is, property taxes can only rise at a rate LESS than inflation. This makes property more valuable, but deprives government of the most essential bases of revenue, AND makes every government service more expensive to deliver.

This is all the result of Proposition 13, back in 1975. And I don't want to hear any more complaints from people who insist that taxes are the problem--in THIS case, it's clear that indiscriminate tax BREAKS are the problem. If you think a society can function well with no taxes, I suggest you try living someplace like, say, Somalia, where there is no government to collect them.

May 12 10:34 PM

[conceptwizard:]

I dont see the difference in legalized Gambling, lottery tickets, alcohol, cigarette or other questionable motive operandi of the mafio called the Government. Its all morally unsound and the means dont justify the overall maintenance cost for addictions etc.. Why ot marijuana? here are some recent statisics

.Since 1992, approximately six million Americans have been arrested on marijuana charges, a greater number than the entire populations of Alaska, Delaware, the District of Columbia, Montana, North Dakota, South Dakota, Vermont and Wyoming combined. Annual marijuana arrests have more than doubled in that time.

"It's time we stopped arresting adults who use marijuana responsibly," says Stroup.

YEAR MARIJUANA ARRESTS

2001 723,627
2000 734,498
1999 704,812
1998 682,885
1997 695,200
1996 641,642
1995 588,963
1994 499,122
1993 380,689
1992 342,314

Prisoners


"Prisoners sentenced for drug offenses constituted the largest group of Federal inmates (55%) in 2001, down from 60% in 1995 (table 18). On September 30, 2001, the date of the latest available data in the Federal Justice Statistics Program, Federal prisons held 78,501 sentenced drug offenders, compared to 52,782 in 1995."

Source: Harrison, Paige M. & Allen J. Beck, PhD, US Department of Justice, Bureau of Justice Statistics, Prisoners in 2002 (Washington, DC: US Department of Justice, July 2003), p. 11.


In 2001, drug law violators comprised 20.4% of all adults serving time in State prisons - 246,100 out of 1,208,700 State prison inmates.

Source: Harrison, Paige M. & Allen J. Beck, US Department of Justice, Bureau of Justice Statistics, Prisoners in 2002 (Washington, DC: US Department of Justice, July 2003), Table 17, p. 10.


Over 80% of the increase in the federal prison population from 1985 to 1995 was due to drug convictions.

Source: US Department of Justice, Bureau of Justice Statistics, Prisoners in 1996 (Washington DC: US Department of Justice, 1997).

LET THM SMOKE IT AND CHARGE THEM TO DO IT VIA TAXES. THEY ARE GOING TO SMOKE THE CRAP ANYWAY!

May 12 10:41 PM

[Market Sniper:]

Just California? How about the federal government??.. as every American knows, April is tax time in the U.S. of A, and accordingly April receipts normally vastly exceeds outlays. Not this year, for the first time in living memory, receipts are lower than outlays in April, a whooping 34% lower than last year...but that is different. Through the private central bank, the Federal government can paper that over with digital money out of thin air. The Supreme Soviet up in Sacramento does not have that luxury.

May 12 11:39 PM

[Al-USA:]

The taxes are a burden on the masses of the working/middle class where they are concentrated; despite double digit unemployment widespread throughout the California. In contrast, big business successfully lobbied for lower tax rates... Now you know how well that works out.

There is also the huge expenditures to subsidize the capitalist's slave labor or illegal immigrants via free k12 education and health care for the poor illegal mothers with kids. The capitalists get their subsidized "illegal" labor but the state goes bankrupt, now you know how well that turned out...

One could go on and on but the people will vote May 19, 2009 and then we will see what happens.

May 13 02:51 AM

[Jasper M:]

EEB,
As I understand it, during the English Civil war, Puritan true believers routinely called any woman married in a Catholic ceremony a "whore". I think that is the sort of thinking that underlies the reference to "illegitimate children" you noted - they're different, therefor inherently immoral.

Frohickey,
Yes, but he's Our bot.

May 13 05:30 AM

[Jimbo:]

I definitely support a committed effort to prosecute those who hire illegal aliens. But please remember this could end up with certain appointees to federal office being busted. I also support paying your taxes but remember that many appointees in Washington have overlooked this "patriotic duty"(Biden). Some time ago, I concluded that we in the consuming and developed world were causing the social fabric of many countries to be ripped apart by the drug trade. So let's legalize Reefer,Cocaine (including crack), and Heroin. Tax it to support rehab. Anyone convicted of DUI loses the conveyance they were driving.(In my county we have had people who lost driver's licenses and were DUI on horseback!). Crystal Meth is "death in the fast lane" so I am still against that.

May 13 11:23 AM

[jksisco:]

The incompetence and short-sightedness of voters, legislators, governor, union leaders, etc. have all fueled this fire.

May 13 03:28 PM

[TinyTim:]

"It's odd how $15 billion or $20 billion really doesn't sound like a lot of money anymore..."

First sign of hyperinflation

That dinner only cost $115 before tip, that's not too bad.

Second sign of hyperinflation.

May 13 04:00 PM

[beenburnedt...:]

You didn't mention bureaucracy, in which civilized California excels!

On May 12 10:34 PM Alan Young wrote:

> Well, somehow the rest of the civilized world manages to pay for
> health care, education, and social safety nets without going bankrupt.
>

May 13 08:56 PM

[Call me Roy:]

100% correct but you will never hear the truth on CNN, ABC, NBC, CBS until we are all in soup lines and then the politically correct will sneak off into the darkness and preach their ignorance there.


On May 12 03:07 PM Gaucho wrote:

> What the hell, let 5-8 million illegal immigrants into the state?
> Give them welfare for their illegitimate children. Provide Medicaid
> and Medicare for anyone willing to cross the border. Have the illegal’s
> drive down the wages while they and the people they work for pay
> no taxes and what the hell do you expect. But I shouldn't say that
> since it would be ist or ism and violate some PC rules that say you
> can't say that.
> But you must remember these folks are heroes for working for 10-15
> dollars an hour and having the government pay for their children’s
> health care while they could be working for 5 dollars a day south
> of the border.
> And where is the Mexican government our amigo? Why aren’t the criminal
> illegal aliens rotting in their jails instead of ours for 50K per
> year. Why aren’t they volunteering to take and imprison these criminals?
> What do they make up, 30-40% of the total state prison population?
>

Nov 20 03:44 PM