Balancing California's Budget: The Home Game

Think you can balance California’s budget and save the nation’s largest state from issuing IOUs starting tomorrow? The L.A. Times has up an interactive graphic whereby you can try to balance California’s budget, albeit in broad-brush form. It is worth a look, as it gives a sense of both the immensity of the gap and the commensurate cuts required in the three biggest line items: education, health, and justice.

Comments

[Mad Hedge F...:]

It looks hopeless. As the California budget battle reaches white hot temperatures,Fitches has cut the rating on the state’s debt to A-, and placed it on“credit watch”, a warning of further downgrades. The move is a delayed recognition of reality, as is the rating agency industry’s practice.The legislature tried, but failed to pass $12 billion in budget cuts,which governor Arnold Schwarzenegger said he would veto anyway, becausethey didn’t meet the full $24 billion tab (see my previous dispairing piece at madhedgefundtrader.com... the package were increases in motor vehicle registration fees, $1.50a pack in additional tobacco taxes, cancellation of health insurancefor one million children, a production tax of 9.9% for in-state pumpedcrude oil, the firing of thousands of teachers, firefighters,policemen, and probation officers, and more smoke and mirrorsaccounting shenanigans that kick the can into the future. Some of thechanges were only possible through a redefinition of the Englishlanguage that turned “taxes” into “fees.”As California goes, so goesthe nation, as many states will follow the Golden State into financialArmageddon. In a new era of soaring unemployment, restrainedconsumption, high savings, and crashing stock and property prices,states dependant on taxes on incomes, sales, capital gains, andproperty appraisals don’t do well. Make sure those muni bonds areinsured. Why do I get the sickening feeling that I am watching a rerunof Thelma and Louis?

Jul 01 01:30 PM

[Mark Anthony:]

My comment:

1.First let's recognize that it is impossible to fully balance CA's budget in the short term. It should be a long term goal to balance the budget, but unachieveable in short term. Face that reality.

2.Second. The short fall of the budget, since it can not be balanced in short term, must be BORROWED. Issuing IOU is a defacto way of forcefully borrowing money. It's a dishonest way of borrowing money. I would rather see that we borrow money in an honest way. Pay fair interest, provide plenty of guarantee and collateral so lenders can lend the money to CA with confidence that CA can ultimately balance the budget and pay back the money. CA should also attempt to borrow money from the federal government. We are not asking for a bailout or hand out, we are asking to borrow money on fair terms. If the federal government can not do as much as a private lender would do, e.g., lend money to CA, then it's time to consider letting CA secede from the nation and go independent.

3.Instead of increase tax, cut tax. CA needs to do all sorts of things to attract investment capitals to flow INTO instead of out of CA. If we can attract investment money, we will have a prosperious future for CA, and we will have future revenue and future balanced budget. If we can not keep capitals within California, then we are doomed long term.

4.Cut spendings where possible. Do not cut education. Cut prison expenses by outsourcing the prison and allow prisoners to conduct productive labor to generate revenue and generate a very modest income for the prisoners themselves. Prisoners can sign up for such volunteer labor on their free will, so it is NOT a forced labor. Hopefully prisons can generate net income instead of net expenses.

5.Cut welfare. Illegal immigrants should not enjoy any welfare benefits. Even legal residents must receive welfare on the basis that they can contribute something to the society where they are able to. No more free lunch.

Jul 01 03:30 PM

[Big Bubbette:]

The problem here in California is the Democratic Legislature has been on the government union payroll so long that they have driven the State into bankruptcy. When Gray Davis gifted the Prison Guard union 100% pay on retirement available at age 52 he was told that as the population of retired government workers grew it would bankrupt the State. Davis was recalled for trying to increase license plate fees by $15.00 to try and cover this gift. Davis and the tax went away, but the gift did not. Since then the Democratic legislature has expanded the gift to cover many other government unions. The cost of this is truly staggering. The City of Vallejo had to go to bankruptcy court to get rid of these unsustainable payments. What did the Democratic Legislature try to do, make it impossible for Cities to file bankruptcy in California.

The other issue here is the cost of health care and entitlement programs for illegal aliens. Until we finish the border fence and cut off the flow of illegal aliens we are never going to get the cost of this problem under control. Granting amnesty to an estimated 20 to 40 million illegal aliens is not the answer. San Francisco is broke, a so called Sanctuary City, and last year passed a law to hand out identification cards to illegals to make it easier for them to sign up for entitlements. The cost was estimated to be in the 90 million dollar range.

Pass and enforce E-Verify. Finish the border fence. There is a bill called HR 1868 in Congress trying to end the so called Anchor Baby issue.

Ban government unions. There is no need for government unions.

Jul 01 03:34 PM

[Mark Anthony:]

Big Bubbette:

Border fence is useless. It is physically impossible to prevent people from coming over the boarder, if they have the desire to come over the boarder. Higher fence merely make it a little more difficult as they need to dig tunnels a little deeper and longer. So forget about the border fence.

But it is possible, that before you grant any one welfare, make sure to check his/her IDs to verify that he/she has legal status in the USA. How hard is it to understand that concept?

Other than that, if hard working Mexicans are willing to sneak over the border and willing to work hard to earn a low wage doing works many Americans are not willing to do, and send the money back home to take their family. I say let them. We do not explicitly encourage illegal border crossing. But Mexican labors here do contribute a significant part to California economy. Just don't take a welfare check from us and you will be fine.

The most important thing is how do you encourage capitals from around the world to come here, stay here, invest here. You need to provide incentive for that to happen. If we can get one million of the world's millionaires to move into California and settle down here, then we can immediately solve California's budget crisis.

Jul 01 04:24 PM

[dw57:]

Congress can't change the so called anchor rule. all you could really do is offer the parents the options of 1) put the child up for adoption , 2) take the child with them.
since the supreme law of the land defines who is a citizen.
short of changing that (maybe in 20 or 30 years to get that done. if you can).
and doing that would then bring the question of. who is a citizen?
you could define it as child of Americans. since that would become a chicken an the egg problem.




On Jul 01 03:34 PM Big Bubbette wrote:

> The problem here in California is the Democratic Legislature has
> been on the government union payroll so long that they have driven
> the State into bankruptcy. When Gray Davis gifted the Prison Guard
> union 100% pay on retirement available at age 52 he was told that
> as the population of retired government workers grew it would bankrupt
> the State. Davis was recalled for trying to increase license plate
> fees by $15.00 to try and cover this gift. Davis and the tax went
> away, but the gift did not. Since then the Democratic legislature
> has expanded the gift to cover many other government unions. The
> cost of this is truly staggering. The City of Vallejo had to go to
> bankruptcy court to get rid of these unsustainable payments. What
> did the Democratic Legislature try to do, make it impossible for
> Cities to file bankruptcy in California.
>
> The other issue here is the cost of health care and entitlement programs
> for illegal aliens. Until we finish the border fence and cut off
> the flow of illegal aliens we are never going to get the cost of
> this problem under control. Granting amnesty to an estimated 20 to
> 40 million illegal aliens is not the answer. San Francisco is broke,
> a so called Sanctuary City, and last year passed a law to hand out
> identification cards to illegals to make it easier for them to sign
> up for entitlements. The cost was estimated to be in the 90 million
> dollar range.
>
> Pass and enforce E-Verify. Finish the border fence. There is a bill
> called HR 1868 in Congress trying to end the so called Anchor Baby
> issue.
>
> Ban government unions. There is no need for government unions.

Jul 01 05:18 PM

[HerrHansa:]

Once again what is missing from the LA Times article is revenue generation. If California could entice better businesses with higher paying employment into the state, then tax revenues would increase without the need to increase individual taxes.

Jul 01 06:39 PM

[realitybiter:]

That concept of "hard working Mexicans doing jobs Americans won't do" is nonsense and anyone who has ventured out of their gated community into the real world knows this.
a) unemployment is well into double digits. Give me a break that Americans are refusing opportunities.
b) it is not as if we just get the lone wolf Mexicans. They bring their kids, dump them in day care, aka public school and and at $10k a head your cheap, $20k a year gardener's 3 kids is now costing $50k. While you are denying welfare, deny all public services, health and education included.
c) how the heck do you think the Mexican gangs became the largest gang network in America? Just doing jobs Americans won't?
d) Mexico is a failed country and we get their citizens are failing there and that are not going to uplift the America. We file more patents in a week than Mexico has filed in its entire existence. If you want to come to America bring some skills. We have plenty of unskilled folks already.


On Jul 01 04:24 PM Mark Anthony wrote:

> Big Bubbette:
>
> Border fence is useless. It is physically impossible to prevent people
> from coming over the boarder, if they have the desire to come over
> the boarder. Higher fence merely make it a little more difficult
> as they need to dig tunnels a little deeper and longer. So forget
> about the border fence.
>
> But it is possible, that before you grant any one welfare, make sure
> to check his/her IDs to verify that he/she has legal status in the
> USA. How hard is it to understand that concept?
>
> Other than that, if hard working Mexicans are willing to sneak over
> the border and willing to work hard to earn a low wage doing works
> many Americans are not willing to do, and send the money back home
> to take their family. I say let them. We do not explicitly encourage
> illegal border crossing. But Mexican labors here do contribute a
> significant part to California economy. Just don't take a welfare
> check from us and you will be fine.
>
> The most important thing is how do you encourage capitals from around
> the world to come here, stay here, invest here. You need to provide
> incentive for that to happen. If we can get one million of the world's
> millionaires to move into California and settle down here, then we
> can immediately solve California's budget crisis.

Jul 01 08:30 PM

[dieuwer:]

I was able to generate a $1B surplus cutting unnecessary medical benefits and welfare, some education and some tax increases (on unhealthy stuff).
The $1B surplus should be invested ASAP in gold.

Jul 01 09:18 PM

[paultheprofit:]

""That concept of "hard working Mexicans doing jobs Americans won't do" is nonsense and anyone who has ventured out of their gated community into the real world knows this.
a) unemployment is well into double digits. Give me a break that Americans are refusing opportunities.""

HELLO...yes they are...PERIOD...obviously said poster themselve's wouldn't do what they do...(still IN YOUR gated community OBVIOUSLY)....can tell from that IVY TOWER post/comment...don't play poker...my friend...

Jul 01 10:47 PM

[just.a.guy:]

If I tried to send in an "IOU" to pay my obligations to the holder of my home's mortgage, I would be in default. Why do the headlines read "California Issues IOUs..." instead of "California Defaults on Its Debt"?

Jul 02 04:22 AM

[H.J. Huneycutt:]

That's not happening any time soon.

Also, other than NYC, what place on Earth has "better businesses" with "higher paying employment" than California? There might be a few places here or there in the developed world, but there aren't many.

The only significant new business that California might be able to lure in is offshore oil. Any other business that moves into California right now is absolutely insane. Why would anyone want to come with:

(1) The highest cost of living in the nation
(2) Close to highest wages in the nation
(3) A bankrupt state government
(4) High taxes with the prospect of higher taxes
(5) The myth of the Californian semi-utopia destroyed
(6) Ponzi-scheme tax system that punishes newcomers (see Prop 13)
(7) Silicon Valley no longer being the technological capital of the world
(8) There's sprawl, sprawl, and more sprawl --- coupled with some of the highest gas prices in the nation --- that's only going to get worse over time

At this point, the only major thing left to attract people to California is the university education system, which is the best in the world. But is it going to stay that way once CA balances its budget? Education spending is around 40% of the budget.

The Northeast, Mid-Atlantic, and Midwest might experience a gradual recovery over the next decade, but I think California is in for a prolonged period of suffering. I'm not saying it's going to turn into Detroit (though according to many sources Stockton is arguably worse than Detroit) --- but it's not going to be the big "winner" coming out of this.

Long-term macroeconomic cycles that affects regions and cities are not uncommon in American history. In 1950, Baltimore and Memphis were on top of the world. Not so much now. But maybe they will be again in another decade or two. And maybe California will feel like it's somewhere near the bottom.

I can't read the future, but I think California is going to have a really hard time convincing businesses to move to the state in mass numbers any time soon.


On Jul 01 06:39 PM HerrHansa wrote:

> Once again what is missing from the LA Times article is revenue generation.
> If California could entice better businesses with higher paying employment
> into the state, then tax revenues would increase without the need
> to increase individual taxes.

Jul 02 07:03 AM

[deflation r...:]

As a private worker I have interacted with multiple public agencies at the city, county and state level in California. Most of these people move at the speed of a desert turtle beaten down by the Mojave heat and are near impossible to fire. It is an epidemic of laziness brought upon by fears of litigious complants to the supervisor that attempts to create efficency in thier organization.

Jul 02 07:22 AM

[Mayer Amsch...:]

I got a 30 billion dollar surplus! All I did was cut all services and raise all taxes. Case closed.
There should be a part of the game where your solutions will get scores for the number of members of the legislature who will vote for it. If you get a majority, you win!*


*Disclaimer: winning game not possible

Jul 02 09:36 AM

[Anthony Pri...:]

It is clear that californias budgetary problems are also political in nature...any attempt to address their chronic shortfall must also go hand in glove with fundamental political reform...to many ballott propositions that handcuff the govenor and the legislature...


by: Anthony Primerano
anthonyprimerano.com
anthonyprimerano.ca

Jul 02 10:17 AM

[xsellside:]

When Government workers are furloughed, will anyone even notice?

Jul 02 10:17 AM

[WS1835:]

In a similar article, someone posted the annual revenue and spending totals for the last 10 years of California budgets. And guess what??

There is no revenue problem. Tax revenue has increased by ~50%. Spending is the problem. Despite the steady revenue increase, spending outpaced revenue in each and every budget year. The average deficit for the period was ~9%. The same political party controlled the legislature the entire time, and that party openly sold out to the public employee unions a long time ago.

California is simply unfixable until its citizens stop electing big spending representatives.

Jul 02 01:00 PM

[HerrHansa:]

Absolutely agreed. The current thinking in California government leads to a very anti-business direction. It would require a radical rethink to change that attitude. Perhaps we are at the point that California needs to fail, because then it might be able to find a direction for the future.


On Jul 02 07:03 AM H.J. Huneycutt wrote:

>
> I can't read the future, but I think California is going to have
> a really hard time convincing businesses to move to the state in
> mass numbers any time soon.

Jul 02 04:40 PM

[Freedom Fan:]

California needs to renegotiate all union contracts and ban public sector unions. Roll back all government salaries to the same level as the year when we last had a balanced budget.

Get rid of all the fat bureaucrat salaries and pensions. Replace 'defined benefit' pensions with 'defined contribution' like the private sector.

Get rid of teaching tenure. Fire the army of fat-cat education administrators. Implement education vouchers and reduce the per-pupil cost of education to the same level as the rest of America.

Fire all the prison guards; out-source this and every possible function to the non-union private sector.

Trim the bloated welfare rolls so that they comply with federal standards like the rest of America.

Deport all illegal aliens, starting with the prisoners.

Stop wasting 30% of all California fresh water by letting it flow into the ocean to save the stoopid delta smelt. Let the farmers grow crops and pay taxes again.

Get rid of all the red-tape regulations on business, starting with the egregious worker compensation insurance. Get rid of all the green regulations starting with the draconian auto emissions standards.

Lower taxes on everybody to attract the productive folks back into the state.

Fire all the liberals. Voters need to focus on the principal miscreants responsible for this mis-management disaster:

Karen "Largemouth" Bass- CA Assembly Speaker
Darrell "Loser" Steinberg- CA Senate President
Noreen "I refuse to live within our means" Evans- Budget Conference Committee Chair

Fire. Them. All.

Since this can not be done quickly, just cut everything across the board by a certain percentage for now.

Ahnold needs to use his line item veto. If not now, when? Do it you girly-man or we will bring back a real grown-up like Tom McClintock.

Gee, I don't think any of these options are available in the little L.A. Times game.

Jul 02 09:08 PM

[Northstar10000:]

Give me one year and the money budgeted for the fence and not even an ant would get across. they are building it to fail on purpose idiots. We can get on the moon but can't build a fence. We buy into government propaganda. Welcome to Foolsville.

Jul 03 05:05 PM

[johngonole:]

The US Federal Govt should sell California to help balance the federal govts budget.

lol...just kidding everyone

Jul 04 02:45 AM