California's Permanent Crisis

Prior to Moody's announcing that it might make a "multi-notch" downgrade to California's debt rating, a rating that now stands at an uncomfortable five "notches" above junk status (it was much more comfortable prior to word of a possible - and highly unusual - "multi"-notch adjustment downward), there was more intrigue in what has become something of a "permanent crisis" for the state's finances.

The San Francisco Chronicle reports that University of California faculty representatives sent a scathing letter to UC regents yesterday in which the board was accused of being, effectively, AWOL during the escalating budget crisis that is sure to have a huge impact on the giant 10-campus system which faces budget cuts of almost $1 billion this year.

"We urge that emergency and open meetings of the board be convened to explore the implications of the budget crisis for the future of the UC system," faculty leaders wrote. The regents last met in early-May and, apparently, didn't address the looming budget cuts.

Elsewhere at the Chronicle, writing for The Scavenger blog, SF Gate home page editor Aileen Yoo pens a masterful piece about how the state's elected officials are dithering.

Growing crisis and growing a pair
As California faces a $24 billion deficit and teeters on the edge of insolvency, Gov. Schwarzenegger and Senate President Pro Tem Darrell Steinberg are exchanging gag gifts full of budget symbolism.

Last week, after Schwarzenegger called the Senate budget plans "hallucinatory," Steinberg sent the guv a basket of garden-variety mushrooms and a note about the fungus' magical effects. Schwarzenegger returned the favor, giving Steinberg a metal sculpture of bull testicles with a note suggesting the Sacto Dem would have to grow a pair to make tough budget decisions, according to sources. There are conflicting reports on the size of the gift. Comparisons range from football (AP) to melon (LA Times). What kind of melon, the Times did not specify, but it's safe to say the sculpture was large enough.

Steinberg spokeswoman Alicia Trost said: "We've got more important things on our plate right now than to waste any more time on such trivial matters."

Indeed, the Legislature needs to focus on more pressing issues such as the font size on health workers' name tags (bill courtesy of Assemblymember Mary Hayashi, D-Hayward) and pomegranate juice. [CORRECTION: The name tag bill's author was not Assemblywoman Fiona Ma as reported by AP]

There's lots more in the piece by Ms. Yoo including lots of links for those inclined to learn more about the ongoing crisis which just appears to grow more hopeless every week, a debt downgrade perhaps taking things to a whole new level.

Comments

[Dave Wrixon:]

No crisis is permanent, although this one may have dragged on for a bit. Ultimately, if they don't turn the situation around soon, then everything will fall apart. When the new reality arrives, then the crisis is over, however distasteful the new normal turns out to be.

Jun 21 03:17 AM

[ksmithdc:]

Interesting read, thanks.

Jun 21 09:54 AM

[Mad Hedge F...:]

this can't go on forever. Sadly, once again, my once beloved but now spurned home state of California is threatening to commit suicide. The formerly Golden State officially runs out of cash in 50 days, and our body building governator, Arnold Schwarzenegger, refuses to borrow any more until the legislature delivers $24 billion in spending cuts. Standard & Poor’s has placed it on Credit Watch, and premiums for credit default swaps on the state’s debt have already spiked back up to 300 bp. I got a letter today from Robert Birgeneau, Chancellor of the University of California at Berkeley, where my son goes to school, telling me that his budget shortfall has just leapt from $67 million to $145 million, and that tuition is going up 9.3%, while staff wages will be cut by 8%, and financial aid will be chopped to the bone. Yikes! And this is the place we are counting on to deliver the scientists, engineers, and professionals who are supposed to keep us globally competitive. Pleas to Obama for a bailout have already been brushed aside, like a pesky fly. He rightly sees us as an alcoholic friend asking to buy him just one last drink. A default would be no joke, as California accounts for 15% of US GDP, and ranks as the world’s eighth largest economy. Few realize that the state is home to the country’s second highest per capita payers of tax revenue into Treasury coffers, after New York (Sarah Palin’s Alaska is the lowest). Hardly a day goes by without banner headlines about closing state parks, cancelling local sports programs, or freezing payments to mothers with dependent children. In fact, most state residents now prefer the Sacramento government to go bust in order to bring a speedier resolution. There is only one possible solution. A new governor holds a constitutional convention to reduce the vote to pass a budget from two thirds to 50%, or a statewide voter initiative accomplishes the same. Maybe ex Ebay CEO Meg Whitman, who will run for Arnold’s job next year, is up to the task?

Jun 21 09:58 AM

[devassocx:]

So you are suggesting new taxes?

Where will that end?

The answer is NEVER!

The real solution is to stop the spending and for the state to
live within its means, which it hasn't done for many years.

What applies to household budgets ultimately applies to California
as well.

The party is over!

There is no more money and the smoke and mirrors have to stop!


On Jun 21 09:58 AM Mad Hedge Fund Trader wrote:

> this can't go on forever. Sadly, once again, my once beloved but
> now spurned home state of California is threatening to commit suicide.
> The formerly Golden State officially runs out of cash in 50 days,
> and our body building governator, Arnold Schwarzenegger, refuses
> to borrow any more until the legislature delivers $24 billion in
> spending cuts. Standard & Poor’s has placed it on Credit Watch,
> and premiums for credit default swaps on the state’s debt have already
> spiked back up to 300 bp. I got a letter today from Robert Birgeneau,
> Chancellor of the University of California at Berkeley, where my
> son goes to school, telling me that his budget shortfall has just
> leapt from $67 million to $145 million, and that tuition is going
> up 9.3%, while staff wages will be cut by 8%, and financial aid will
> be chopped to the bone. Yikes! And this is the place we are counting
> on to deliver the scientists, engineers, and professionals who are
> supposed to keep us globally competitive. Pleas to Obama for a bailout
> have already been brushed aside, like a pesky fly. He rightly sees
> us as an alcoholic friend asking to buy him just one last drink.
> A default would be no joke, as California accounts for 15% of US
> GDP, and ranks as the world’s eighth largest economy. Few realize
> that the state is home to the country’s second highest per capita
> payers of tax revenue into Treasury coffers, after New York (Sarah
> Palin’s Alaska is the lowest). Hardly a day goes by without banner
> headlines about closing state parks, cancelling local sports programs,
> or freezing payments to mothers with dependent children. In fact,
> most state residents now prefer the Sacramento government to go bust
> in order to bring a speedier resolution. There is only one possible
> solution. A new governor holds a constitutional convention to reduce
> the vote to pass a budget from two thirds to 50%, or a statewide
> voter initiative accomplishes the same. Maybe ex Ebay CEO Meg Whitman,
> who will run for Arnold’s job next year, is up to the task?

Jun 21 11:54 AM

[TinyTim:]

"Schwarzenegger returned the favor, giving Steinberg a metal sculpture of bull testicles "
At least the Terminator hasn't lost his sense of humor.

I still haven't been able to discover whether a state can lawfully declare bankruptcy. If not, what happens when the payments come in short (or not).

Jun 21 01:39 PM

[snagglesnarf:]

If California files bankruptcy, who gets the balls?

Jun 21 07:28 PM

[Northstar10000:]

They are in a complete state of unbelief. They have always have spent a ton and taxed a lot, never giving a thought to the idea that it could only end in tears. Wait until the magic potion of the market takes over and they see how much the scared cows howell. Start with the University of Cal budget. Cut prof's salaries in half. they do nothing, I know, I am one....

Jun 21 07:53 PM

[Bobco23:]

The implications of any level of government being forced to cut costs in half makes me giddy. The tax and spend, grow and control paradigm is over. The beauty of it all is that CA is the first to fall.


On Jun 21 07:53 PM Northstar10000 wrote:

> They are in a complete state of unbelief. They have always have spent
> a ton and taxed a lot, never giving a thought to the idea that it
> could only end in tears. Wait until the magic potion of the market
> takes over and they see how much the scared cows howell. Start with
> the University of Cal budget. Cut prof's salaries in half. they do
> nothing, I know, I am one....

Jun 21 08:28 PM

[ex- bond tr...:]

The only joy I derive from California's demise is that it's pontificating Pelosi's promised land.

Jun 21 11:54 PM

[etpassgo:]

Forgive me for being raw, but these duche-bags in Sac. should all go to financial rehab . . . . the way they spend taxpayer money it's like their high on crack! And even a dope fiend knows that you can't score without dough ($$). They're just doing whatever they can to avoid the inevitable "come-down". Only its on our dime, those of us who live here.

Jun 22 04:39 AM

[Gregman2:]

Fact: Property taxes are artificially low in Caulifonia. Take the Prop 13 cap off and values will naturally adjust downward. Also, get the Constitutional Convention moving to get rid of all the spending measures mandated by past initiatives. Austerity is required right now--that means minialist government, including sacrifices by state employees and their unions.

Jun 22 03:30 PM

[TinyTim:]

So what happens when the rubber meets the road in a few weeks...
Assuming the State Legislators are still paralyzed & Arnie won't borrow the difference, does the State Treasurer get to pick who gets paid and who doesn't?
If he pays the banks and bondholders, do the cops and professors just go home on furlough?
If he pays the cops and pensioners, do the banks sue for default?
If so, do they get to pick the liquidated assets they like?

Jun 22 10:24 PM