California Looking at Massive Budget Cuts 12 comments
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The Sacramento Bee reports that Gubernator Arnold Schwarzenegger vowed to "go all out" to slash spending after voters rejected lawmakers' proposed solutions to close a portion of the gaping budget deficit two days ago.
Wednesday marked a flurry of Capitol activity after election results expanded the state's projected fiscal gap by $6 billion – from an estimated $15.4 billion to $21.3 billion. A joint budget committee announced that it will begin a marathon series of meetings today.
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Schwarzenegger promised to make severe reductions in education, health care and law enforcement. "Every department, every agency, every board needs to essentially be on the table for consolidation, downsizing and, in some cases, elimination," said Assemblyman Sam Blakeslee of San Luis Obispo, who will become Assembly GOP leader June 1.
Layoff notices are already arriving as detailed in a separate report at the Bee, some 5,000 state workers receiving notices this week alone. The Federal Reserve told a congressional committee today that it is reluctant to extend guarantees to California and other municipal market borrowers struggling to sell bonds.
And it looks as though elected officials who have thus far failed to make the tough budget decisions may be in for a hefty pay cut as discussed in this story, also at the Bee.
Well, there's another part of the system that needs fixing - after what we've been through over the last six or eight months, a pay cut set to take effect in 18 months is virtually meaningless in the broader scheme of things, though it may provide some passing gratification for those who only read the headline.
Declaring that elected officials must share the pain of California's fiscal crisis, an independent commission voted Wednesday to impose an 18 percent future pay cut for statewide elected officials and all members of the Legislature.
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The pay cut approved Wednesday won't go into effect until December 2010 because the California Constitution prohibits cutting the salaries of elected state officers in the middle of their terms. That leaves open the possibility that the panel could undo the cut next year when it meets, although the commission expressed no sentiment for such a move.
Maybe a better headline might be, "Pay cuts for California lawmakers delayed 18 months".
They're probably going to have to make even deeper cuts than previously envisioned as it appears the Federal government is not willing to step up and back state bond offerings more than it already has.
According to this story at Bloomberg, California will be largely on its own to raise money.
Their "concern" is certainly understandable.
The House Financial Services Committee, chaired by Massachusetts Democrat Barney Frank, is conducting hearings on four municipal finance bills, including one that would give the Fed authority to guarantee the repayment of variable-rate bonds and short-term notes. Another measure would create a public finance office in the Treasury Department to reinsure $50 billion of municipal bonds through 2015. Insurers, including MBIA Inc. and Ambac Financial Group Inc., lost top ratings, limiting the value of that coverage.
The Fed is “quite concerned” about guaranteeing municipal bonds, David Wilcox, the deputy director of the Fed’s research and statistics division told lawmakers this morning. The Fed could suffer losses if it ended up holding long-term municipal securities that it had to sell to shrink its balance sheet after it provided short-term guarantees, he said.
Kind of like China being "concerned" about all their dollar-denominated assets in light of what's going on in Washington at the Treasury Department and Federal Reserve.
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But the bigger question is what is going to happen next year and the year after that? For a one-time occurrence you can float some bonds, but for a long-term fundamental problem you have to make big changes--major tax increases and/or major service cuts.
The problem is that the political system is controlled by people who benefit from these ridiculous expenditures.
Regular Californians can not afford to keep this political welfare class in business... and like many other things, California is leading the country on this.
The US government has the same problem, and needs the same solution
> Trashed at the polls were plans to create a rainy day fund, improve education, borrow from the state lottery, and pay for children’s services and mental health.
Throwing more money at a problem does not necessarily improve anything.
There is no evidence that education's problems result from a lack of funding. There is plenty of evidence that millions are wasted on administrative overhead. I don't know the numbers for California in particular -- but nationwide, the US spends three times as much per student as any other country. It sure doesn't end up in the classrooms or teacher's salaries. In addition, purchasing fraud (buying products at inflated prices from "friends of the superintendent") is absolutely rampant.
Creating a rainy day fund is a great idea if you have actual money to set aside. How can you be running a hedge fund and suggest setting aside money when a lack of money is the whole reason for the referendums?
Borrowing from the state lottery? California already borrows from the future. That's what all that federal government guaranteed debt is. Claiming to "borrow" from the lottery is just a scam -- its off balance sheet funding by another name. We have all seen the huge damage caused by accounting scams, and we aren't buying it anymore.
California's political welfare class has been living off taxpayers for too long. They will have to go get real jobs. That is the only thing that can save California -- infinite taxes will just make the problem worse
My recommendation for "reforms" needed in CA that only the citizen inititative process can do (as CA legislature/governator will not):
1- Require the state (governator/legislature) to cut ALL state wages by whatever amount is necessary to balance the budget after 60 days without a balanced budget. Added benefit: CA state union employees will pressure legislature to not engage in wasteful spending as it will cost state employees in their paychecks- exactly where the pressure should be.
2- Increase the majority voting requirement to increase taxes from 2/3 to 75%; and include "fees" in the tax definition; just so the legislature does not get "cute" again with an attempted "end run" of the law.
3- Require all elected officials to be re-confirmed in every annual election- like a vote of confidence/no confidence. If they lose, they have one year left until the next year, when there will be an open election for their job. This may be costly and cumbersome, but necessary for the next 5-10 years, and probably cheaper than recall elections until Sacramento mess is cleaned up.
4- Set reasonable salary and pension caps (maximum limits) on all CA state jobs. State and local (city) employees are way overpaid and pensions are out of control. Maximum on all state pensions should be $125,000. Average public safety employees should be limited to $75K salary and an equal pension. Many of these employees retire at 50 on way too much. Once these wage levels are "set in stone", increases should be limited to inflation/cost of living. This also takes the pay raise issue out of the hands of the unions; so who needs them for public sector jobs.
Way to go voters!
Too bad a "no confidence" vote was not on the ballot.
If only the Federal Government could not borrow us into oblivion!