CA Budget Crisis & Pending Cuts Thread

[barbaro]

This has been interesting in California as the state is so large and it's economy so large as well. Instead of the San Quentin and Colliseum thread, the current California budget shortfall and what may happen is worthy of its own thread.

Because CA may be one example of more states to come (including my own).

I have no opinion on these cuts. There will be cuts. There have to be. Debating where and how much, of what and where is not relevant. But it will raise the angst of some of those affected, and I'm not talking about the welfare folks described below. Additional cuts have been decided and more will come.

Here are some of the possibilities:

Governor plans to completely eliminate welfare for families

May 21, 2009
Gov. Arnold Schwarzenegger is proposing to completely eliminate the state’s welfare program for families, medical insurance for low-income children and Cal Grants cash assistance to college and university students.



The proposals to sharply scale back the assistance that California provides to its neediest residents came in testimony by the administration this afternoon at a joint legislative budget committee hearing. It followed comments by the governor earlier today that he would be withdrawing a proposal to help balance the budget with billions of dollars of borrowing and replacing it with program reductions.

The proposals would completely reshape the state’s social service network, transforming California from one of the country’s most generous states to one of the most tightfisted. The proposals are intended to help close a budget deficit estimated at $21.3 billion.
—Eric Bailey

Link: Governor plans to completely eliminate welfare for families | L.A. Now | Los Angeles Times

[barbaro]

Here is an article Op-Ed from the Wall St. Journal that I want to add. So true, IMO.

Mean Street: The Sorry State of Our Sorriest State, California

You live, you learn. Right?

Well, not in America. Here we live, screw up and then go back to doing the same stupid things we did before.

Apparently, it is just too hard for us to make the tough, necessary choices.

Look at the sorry state of our sorriest state, California. It may be the sixth or eighth largest economy in the world, but it isn’t just broke, it’s broken.

And who broke it? The voters will blame the governor. And the Democrats will blame the Republicans and vice versa. But the real culprits, of course, are the people of California themselves.

By defeating the five propositions designed to close the $21.3 billion budget deficit, the citizens of California have richly earned their state’s abysmal credit rating, the worst of any state in the union.

There is no doubt California’s awkward political system hasn’t helped matters. Special ballot votes are a tough way to govern any state. Especially one that requires a two-thirds vote in the state Legislature to pass a budget.

So when Gov. Schwarzenegger said Wednesday that “…I respect the will of the people who are frustrated with the dysfunction in our budget system” he was right in noting that the system is messed up.

But he was wrong to just the fault the system. It really is the fault of the people of California, who live beyond their means–and the laws of economics.

You cannot pay police officers $190,000 a year in salary and benefits or pay your school employees 35% more than the national average and keep your state solvent.

You cannot provide three million illegal immigrants with social services–spending 70% more per capita on social services than the national average–and keep your state solvent.

And you cannot tax your state into solvency with the highest personal income tax rates in the country.

That is why the state’s deficit ballooned 42% to $21 billion from $15 billion in just a few months–and why it will continue to get bigger.

And here’s the kicker. Californians may not have learned the lessons of the past few years, but neither has the rest of America. New York is busy playing catch-up. The state can give unions a 3% raise and add a “millionaire’s” tax, but its budget is still $6 billion underwater.

As for the federal government, well, it doesn’t even have to pretend to balance a budget. So why should it stop itself from repeating past mistakes?

The Department of Housing and Urban Development last week set up a program to give first-time home buyers a tax credit of as much as $8,000 for a down payment. Using that cash, a would-be homeowner would need only a few thousand dollars to buy a $150,000 house.

It’s all there–the American dream of owning a home, very little up-front-money, an eager lender. Just like five years ago.

You live, you learn?

Apparently, not in California, nor the rest of the nation.

Link:
http://blogs.wsj.com/deals/2009/05/2...te-california/
__________________

[larvidchr]

What are the rules if a State in the US goes bankrupt, who takes control of fiscal policy's ?

[crippen]

All makes Thailand with it's balance of payments surplus seem quite rich

[Jet Gorgon]

^^ Dunno all the ins and outs, but spending halts for infrastructure, social programmes, state workers. Milkie probably knows better info.
As for CA, its teachers, for example, are the highest paid in the country yet its student scores are at the bottom. Like other "welfare" states, its tax-the-sh*t-outta-the-rich policy has created an exodus of the wealthy and businesses to other states, which means tax revenues have dried up. If the money vanishes, the welfare cases will be forced to work or, in CA's case, move back to Mexico.

[Jet Gorgon]

Oh, and I think CA's sea otter programme will have to go. *sob*

[Muadib]

You cannot pay police officers $190,000 a year in salary and benefits or pay your school employees 35% more than the national average and keep your state solvent.

Ridiculous... I have also heard that retired firemen in California have a combined retirement package totaling $175,000 a year which can be drawn after 20 years of service...

Was talking with a friend about the plight of California and we were both of the same opinion.... Let them twist in the wind.... They have done it to themselves...

[barbaro]

From February of 2009, but relevant to now.

• TLOOK
• FEBRUARY 18, 2009

The Decline of California

They still think they can tax their way out of this one.


If you thought Washington's stimulus debate was depressing, take a look at the long-running budget spectacle in California. The Golden State's deficit has reached $42 billion, Governor Arnold Schwarzenegger is threatening to furlough 20,000 state workers (go ahead, make our day), and as we went to press yesterday Democrats who control the legislature had blocked lawmakers from leaving until they finally get a deal.
AP


It's sad to watch. The Golden State -- which a decade ago was the booming technology capital of the world -- has been done in by two decades of chronic overspending, overregulating and a hyperprogressive tax code that exaggerates the impact on state revenues of economic boom and bust. Total state expenditures have grown to $145 billion in 2008 from $104 billion in 2003 and California now has the worst credit rating in the nation -- worse even than Louisiana's. It also has the nation's fourth highest unemployment rate of 9.3% (after Michigan, Rhode Island and South Carolina) and the second highest home foreclosure rate (after Nevada)

Link & Entire: Raising Taxes Won't Solve California's Budget Deficit - WSJ.com

More recent: from November of 2009:

California faces a projected deficit of $21 billion

The legislative budget analyst's projection, to be released Wednesday, threatens to send Sacramento back into gridlock and force more broad cuts to state programs. Gov. Arnold Schwarzenegger will present his next proposed budget in January. Republicans vow to block new taxes; Democrats say they are through with cuts. (Eric Paul Zamora / Associated Press)



By Shane Goldmacher November 18, 2009


Reporting from Sacramento - Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento, according to a report to be released today by the chief budget analyst.

The new figure -- the nonpartisan analyst's first projection for the coming budget -- threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs.

The grim forecast, described by people who were briefed on the report by Legislative Analyst Mac Taylor, comes courtesy of California's recession-wracked economy, unrealistic budgeting assumptions, spending cuts tied up in the courts and disappearing federal stimulus funds.

Link & Entire: http://www.latimes.com/news/local/la...,7647152.story

The most recent: possible insolvency.....but this.....is from Jan of 09.

California nears insolvency amid budget woes: gov

Jim Christie
SAN FRANCISCO
Thu Jan 15, 2009 4:38pm EST






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SAN FRANCISCO (Reuters) - California Gov. Arnold Schwarzenegger said on Thursday the state "faces insolvency within weeks" and that he will put new policies on hold until there is a deal with lawmakers to close the budget gap, which will top $40 billion over the current and next fiscal year.
U.S.
"It doesn't make any sense to talk about education, infrastructure, water, health care reform and all these things when we have this huge budget deficit," Schwarzenegger said in his annual state of the state speech.

The speech stood in sharp contrast to his previous state of the state addresses. It was short, blunt and focused on the urgent task of balancing the books of the most populous U.S. state and nation's biggest issuer of public debt.


In prior years he used the address to propose ambitious plans to overhaul the state government and to call on lawmakers to join him in rallying voter support for significant spending to improve and expand California's public works.


But now California faces a recession-driven decline in revenues pushing its current budget into a deep deficit and opening another massive shortfall in its next budget.


The housing slump's ripple effects have finally spread across California's economy and the mortgage market turmoil that put Wall Street on its heels is slashing into the state's revenues. California relies heavily on personal income taxes so its coffers swell in good times and run thin in lean times.

Link & Entire: http://www.reuters.com/article/idUSTRE50E7TF20090115

[dotcom]

That's because they have a lot of retired union teachers (retired at 50) making $170k a year.

Sweet deal huh?

Wait till the feds get done shifting healthcare costs onto to them - woo woo.

[barbaro]

That's because they have a lot of retired union teachers (retired at 50) making $170k a year.

Sweet deal huh?[

I know a CA retired teacher who put in 30 years. He doesn't get $170K.

Retire at 50? I don't think it's possible. If someone retires before 60 they take a major reduction in what they receive.

Where did you get this information?

[barbaro]

IMO, all a bailout for California will do, is postpone the likelihood of bankruptcy/insolvency.

And as noted in US Domestic (thanks, Maudib) there could be big problems as a result.

55% Say Better for California To Go Bankrupt Than Be Bailed Out

California Governor Arnold Schwarzenegger reportedly intends to ask this week for a federal bailout to keep his state from going bankrupt. But most voters have never been fans of any kind of federal bailout, and most continue to oppose a bailout for California, even when told what specific budget cuts may be necessary. A new Rasmussen Reports national telephone survey shows just 27% of voters nationwide believe the federal government should provide bailout funding for California. Fifty-five percent (55%) think the federal government should let the state go bankrupt instead. Seventeen percent (17%) are not sure.

http://www.rasmussenreports.com/publ..._be_bailed_out

[Muadib]

It begins...

California, Texas, Ohio Showed Biggest Job Losses (Update2)

By Courtney Schlisserman

Jan. 22 (Bloomberg) -- Employment dropped in 39 U.S. states in December, seven more than in the prior month, indicating job losses were widespread.

Payrolls in California showed the biggest decline, falling by 38,800 last month, according to figures issued today by the Labor Department in Washington. Texas followed with a 23,900 decline and Ohio was next with a 16,700 drop.

With the national unemployment rate projected to average 10 percent this year, state budgets may continue to be strained by limited tax revenue and jobless insurance payments. While the pace of firings has eased over the last year, the time it is taking to find a job rose to a record 29.1 weeks in December.

Balance of story here...

[Mr Earl]

Screw it, just tax the rich and big business.

Way to go Bambam!

[attaboy]

Retire at 50? I don't think it's possible.

I know two State employees who retired at 55 years of age both bring in $100k+ in retirement. Before retirement and before it became an embarrassment to talk about the amount of their retirement they said they would receive 80% of their salary.

[attaboy]

It begins...

California, Texas, Ohio Showed Biggest Job Losses (Update2)

By Courtney Schlisserman

Jan. 22 (Bloomberg) -- Employment dropped in 39 U.S. states in December, seven more than in the prior month, indicating job losses were widespread.

Payrolls in California showed the biggest decline, falling by 38,800 last month, according to figures issued today by the Labor Department in Washington. Texas followed with a 23,900 decline and Ohio was next with a 16,700 drop.

With the national unemployment rate projected to average 10 percent this year, state budgets may continue to be strained by limited tax revenue and jobless insurance payments. While the pace of firings has eased over the last year, the time it is taking to find a job rose to a record 29.1 weeks in December.

Balance of story here...

Some State worker salaries are funded by ballot measures so the Governor cannot touch their salaries. Those that Gov. Schwarzenegger could effect were required to take unpaid furlough days twice a month (increased to three days a month). Many of them got around it by working overtime. Their union sued in court and recently a California judge ruled that forced unpaid furloughs are illegal so State workers can now look forward to getting fired.

[Mr Earl]

Retire at 50? I don't think it's possible.

I know two State employees who retired at 55 years of age both bring in $100k+ in retirement. Before retirement and before it became an embarrassment to talk about the amount of their retirement they said they would receive 80% of their salary.

It boggles the mind!

It's like having a million mosquitoes attacking all at once sucking out your blood.

[sabang]

Fifty-five percent (55%) think the federal government should let the state go bankrupt instead.

Some State worker salaries are funded by ballot measures so the Governor cannot touch their salaries

It seems California is lumbered with a load of this sort of crap, that the state assembly and Governor can not touch. Unless they go bankrupt that is- some sort of 'chapter 11' re-organisation, however that may apply to states.

Seems their only way out from here.

[barbaro]

^ And if CA goes bankrupt, there will be sacrifices made. It seems like a very inept, state.

[attaboy]

Some State worker salaries are funded by ballot measures so the Governor cannot touch their salaries. Those that Gov. Schwarzenegger could effect were required to take unpaid furlough days twice a month (increased to three days a month). Many of them got around it by working overtime. Their union sued in court and recently a California judge ruled that forced unpaid furloughs are illegal so State workers can now look forward to getting fired.

Some details of the most recent court decision:

The specific question before his court was whether Schwarzenegger had the authority to order furloughs of employees from special fund agencies, such as the departments of insurance, managed health care, real estate and motor vehicles. They receive their operating money from fees or assessments and not the general fund, which is the state's main checkbook.

The administration argued in part that the money saved by furloughing those employees could be borrowed and sent to the state general fund to fill a multibillion dollar budget gap.

The court found that the across-the-board furloughs were ordered without consideration to the departments' missions and interfered with their ability to serve the public, violating state law.

Since the furloughs began, the special fund departments have incurred $102 million in overtime costs, according to the court ruling.

"When furloughs are implemented to save money, yet their implementation in some agencies saves nothing and increases costs, such a policy is arbitrary, capricious and unlawful," the judge wrote.

Roesch ruled against Schwarzenegger's furlough orders on two fronts: He said the administration could not take the action against employees in special fund agencies. He also said Schwarzenegger had overstepped his authority by claiming the furloughs were necessary to deal with a budgetary emergency.

Roesch said the governor can overstep the Legislature's normal authority in an emergency only for a temporary period, a period the judge said ended once the Legislature approved the state budget.

"The Executive Orders themselves appear to recognize that the emergency necessitating them was the failure of the Legislature to pass the budgets, though the reach of the orders extended long after those budgets were subsequently passed and signed into law," the judge wrote.

Many more lawsuits pending by State employee unions.

[Butterfly]

time to raise taxes for the super rich, they need to contribute more socially

[sabang]

For sure. The income disparity in the States is that of a third world country.
Story of the last 20 years or so- the Rich have got substantially richer, everyone else has stagnated.
This in a country where minimum wages are hovering around 50% those of the UK (subject to forex variation of course).
Then of course the financial crisis.

Some government of the people.

[Butterfly]

they will have no choice but raising tax eventually, and the only people that can be targeted are those who benefited the most in the last 20 years, time to face the bills and stop dodging it

The super rich have no idea what to do with their money, they buy stupid inefficient things (like private jet, and expensive low mileage cars), and all their savings are fueling silly speculation and bubbles. Time to invest in real public assets.

[barbaro]

they will have no choice but raising tax eventually, and the only people that can be targeted are those who benefited the most in the last 20 years, time to face the bills and stop dodging it

The super rich have no idea what to do with their money, they buy stupid inefficient things (like private jet, and expensive low mileage cars), and all their savings are fueling silly speculation and bubbles. Time to invest in real public assets.

The super-rich cannot pay for all of California's problems.

3000 people are leaving the state per month. I assume these are middle-class folks.

CA will have very tough choices to make in the future. Mostly likely the cutting of many things. You can't keep taxing when CA taxes are already high, and unemployment (u3 rate) is 10%.

[MrG]

Whatever "contribution" the wealthy will ever make to what is generally called "the Commons"--all the infrastructure, supplies, processes etc. that everyone relies on and that we all use--will have to be taken from them. They will not give up one dime because it's fair or right or good--all the values that that like to mouth.

And if you try to tax it, they will take it off-shore, then send money back to buy your elections, politicians, information, etc.

I think everything is going to work out just fine.

[barbaro]

IOUs could be back in a couple of months for CA.

What are the current prospects for bankruptcy/insolvency? I haven't heard it in the news much, lately. Anyone up on this?

California controller: State will run out of cash before April

By Denis C. Theriault

dtheriault[at]mercurynews.com

Posted: 01/22/2010 0527 PM PST
Updated: 01/22/2010 0900 PM PST


SACRAMENTO — State Controller John Chiang issued a stern warning Friday about California's cash reserves, telling legislative leaders and Gov. Arnold Schwarzenegger they must act on nearly $9 billion in budget cuts the governor is seeking by March — or the state will run out of cash to pay its bills.

Without making those cuts — which Chiang says will pump $1.3 billion into the state's checking account — California would be broke by April 1, no fooling.

The state wouldn't climb back to what's considered a safe level of cash on hand, $2.5 billion, until later that month, when tax revenues are expected to begin flowing into Sacramento.

"While our current cash condition is marginally better than it was one year ago," Chiang wrote to leaders, "it is still precarious."
Even with the budget cuts, the state's cash reserve would still be far below that cushion in March and April.

To that end, Chiang is calling for an additional $2 billion in cash-flow "solutions." Looking at previous cash crunches, that could mean some payments, like income tax refunds, would be delayed for a few weeks to keep the cushion intact.

"Call it overdraft insurance," said H.D. Palmer, spokesman for the state Finance Department. He stressed that officials are still huddling over specific solutions.

If the budget gridlock lingers all the way to July, then IOUs could come back into play.

And because many budget cuts require months of ramp-up to take effect, delaying action on a new budget could inflate the state's overall $19.9 billion deficit by $2 billion, Palmer warned. "Inaction ignores the projected cash shortfall which we face in less than 70 days," Chiang wrote. "Only you can prevent history from repeating this year."

Link: California controller: State will run out of cash before April - San Jose Mercury News