CA FINALLY starts fixing budget

[Surlethe]

NYT

Filed at 9:59 p.m. ET

SACRAMENTO, Calif. (AP) -- Gov. Arnold Schwarzenegger and California's legislative leaders have agreed on a plan to close the state's $26 billion budget shortfall.

The agreement would be a first step toward ending the IOUs the state has been issuing this month, but it must make it through both houses of the Legislature.

Schwarzenegger emerged from his office shortly before 7 p.m. to announce the deal after more than five hours of closed-door talks. He told reporters: ''We are very happy to have a basic agreement.''

The plan will include billions of dollars in cuts. The rest of the deficit will be made up by a combination of borrowing, shifting money from other government accounts and accelerating the collection of certain taxes.

Schwarzenegger and Republican lawmakers refused to raise taxes any further, limiting lawmakers' options.

Associated Press Writer Judy Lin contributed to this story.

About time they got the ball rolling.

[Darth Wong]

I've been looking at some of the other states' budgets, and it seems to me that many of them are in worse shape than California. Many of them have debts which are proportionally larger than California's debt (for example, New Jersey's debt is much larger per capita than California's debt). And yet California's budgetary woes make national headlines, while other states' budgetary problems do not. Why is this?

[Samuel]

We have over 40 million people. And no one cares about New Jersey.

[Tanasinn]

Perhaps it's a case of schadenfreude on the part of states that feel the pain of shitty state budgets more often and with more depth?

[Darth Wong]

Perhaps it's a case of schadenfreude on the part of states that feel the pain of shitty state budgets more often and with more depth?

It's more than that. California is often held up as an object lesson for other states in what not to do. And yet, many other states are either in just as much trouble or they are actually worse off.

I can't help but wonder if it's due to a general dislike of California among so-called "heartland" Americans; they like the idea of California being held up and pilloried as an example of fiscal irresponsibility, because it fits into their notions of the fundamental nature of California vs the rest of America.

[Shinova]

The majority of America probably has low opinions about California. They always think we do nothing but go to beaches, make movies, and hang out in Hollywood or something. And it's California. Los Angeles, San Francisco... there's that free-spirited west coast image that California has, which heartland Americans dislike for some reason, although truth being we work and suffer just as hard as any other American. It's just our celebrity population that makes us look like we do nothing but party.

[CaptainChewbacca]

The rest of the deficit will be made up by a combination of borrowing, shifting money from other government accounts and accelerating the collection of certain taxes.

Its still a shell-game, and we still need to fix it.

[Rogue 9]

I've been looking at some of the other states' budgets, and it seems to me that many of them are in worse shape than California. Many of them have debts which are proportionally larger than California's debt (for example, New Jersey's debt is much larger per capita than California's debt). And yet California's budgetary woes make national headlines, while other states' budgetary problems do not. Why is this?

Other states aren't the tenth largest economy in the world independent of the rest of the country, with a GDP roughly on par with Italy and coming in ahead of Mexico, Spain, and Canada.

[Master of Ossus]

I've been looking at some of the other states' budgets, and it seems to me that many of them are in worse shape than California. Many of them have debts which are proportionally larger than California's debt (for example, New Jersey's debt is much larger per capita than California's debt). And yet California's budgetary woes make national headlines, while other states' budgetary problems do not. Why is this?

New Jersey might have a higher level of debt per capita than California, but its budget is in dramatically better shape (I think that its total budget is on the order of $30 billion, and its deficit is something like $1-$2 billion). California's budget deficit was on the order of 20% of the state's total budget, and so on top of being much larger in absolute figures its budget deficit was also dramatically larger as a proportion of total spending, and so the cut-backs/tax increases required to fix it would be larger.

[Vympel]

I don't understand how they can expect to fix the budget when their solution has no new taxes - but new borrowing.

[ArmorPierce]

That for someone else to figure out. I believe in governmental accounting part of it is cash basis so they can get away with saying that the budget is fixed. There has been some work on it so that it's not as easy to just say that and have it look like it's realistically true.

[Shinova]

I don't understand how they can expect to fix the budget when their solution has no new taxes - but new borrowing.

That they've made it nearly impossible to implement new taxes sure helps. And the belief that money grows on trees.

[Darth Wong]

I don't understand how they can expect to fix the budget when their solution has no new taxes - but new borrowing.

That they've made it nearly impossible to implement new taxes sure helps. And the belief that money grows on trees.

Most likely, they're hoping that receipts will increase when the economy recovers, so they just need to borrow to cover the bad time, and then they can dig themselves out when good times return. Nevada is operating on the same hope. If it works they'll all feel really smart. If, on the other hand, America has a "lost decade" like Japan did, then this will be a really bad idea.

[aerius]

I've been looking at some of the other states' budgets, and it seems to me that many of them are in worse shape than California. Many of them have debts which are proportionally larger than California's debt (for example, New Jersey's debt is much larger per capita than California's debt). And yet California's budgetary woes make national headlines, while other states' budgetary problems do not. Why is this?

Per capita, but not as a percentage of the state's GDP or budget, and on top of that California has craploads of existing debt to service while most other states don't. For deficits as a percent of their budget, California's at #3 behind Alaska & Michigan IIRC, and since they already have so much existing debt issues they can't make more of them without getting their credit rating downgraded which would make existing debts a lot more costly to service, and may even cause an outright default.

[Sarevok]

Maybe it's simpler than that. California is big, famous and rich. There was the saying California would be worlds 5th largest economy if it were a seperate country. So people are more interested in Californias problems because Californias economic future can have grave impacts worldwide.

[Alferd Packer]

Per capita, but not as a percentage of the state's GDP or budget, and on top of that California has craploads of existing debt to service while most other states don't. For deficits as a percent of their budget, California's at #3 behind Alaska & Michigan IIRC, and since they already have so much existing debt issues they can't make more of them without getting their credit rating downgraded which would make existing debts a lot more costly to service, and may even cause an outright default.

Also, New Jersey basically always runs a deficit; due our federal tax liability being frequently the highest of any state (in other words, for every dollar I pay in taxes to the federal government, New Jersey sees about 61 cents return to it in one way or another). Combined with extremely low per capita federal spending in New Jersey, a great deal of cash (on the order of 20+ billion dollars annually) simply vanishes from the state. Because of this, income and property tax burdens are extremely high across the board. I like shocking people from other parts of country or other countries by pointing out what large homes on large lots are typically taxed at.

Now, New Jersey's state constitution mandates that no deficits may be run when the fiscal year begins. So, every year just about, New Jersey has faced a budget deficit of some size. This means that state politicians are used to cutting services and raising tolls/taxes to generate the necessary revenue. More importantly, we residents are used to it, so while we have a 3 billion dollar gap to close this year, it will be closed: tolls will be raised, taxes will be increased, and services will be cut. And we'll probably do it all again next year. Same shit, different day.

[J]

More details from the WSJ

Link

California Budget Deal Closes $26 Billion Gap

By STU WOO and RYAN KNUTSON

SACRAMENTO, Calif. -- Gov. Arnold Schwarzenegger and California legislative leaders Monday said they reached a compromise to close the state's $26 billion budget shortfall.

Under the plan, state lawmakers would cut $15 billion in spending. The rest of the gap would be filled by taking funds from local governments and through one-time fixes and accounting maneuvers. The deal must still be approved by rank-and-file legislators, who are expected to vote on it Thursday.

"We have accomplished a lot in this budget," Mr. Schwarzenegger told reporters after lawmakers struck the deal Monday evening. "We dealt with the entire $26 billion deficit," he said.

The nation's most populous state faces a $26 billion gap in a $92 billion general-fund budget through June 2010. Mr. Schwarzenegger and legislators have been wrestling over the budget for weeks, forcing the state's chief accountant to issue IOUs to many creditors, including some welfare recipients.

As of Friday, the state had issued 153,711 IOUs, worth a total of $682 million. The office of Controller John Chiang said it would need to evaluate the budget proposal before determining when it could stop issuing the warrants.

Economists said the spending cuts will bruise a California economy already slammed by rising unemployment and foreclosure rates. "It will certainly offset a fraction of the federal-stimulus effect this fall," said Roger Noll, a professor emeritus of economics at Stanford University. "That will mean the depth and duration of the recession [in California] will both be bigger than otherwise would've been the case," he said.

The leaders of the Democratic-controlled state legislature said that of the $15 billion in cuts, $9 billion would come from education, $1.3 billion from state-worker furloughs and $1.2 billion from the prison system.

"For Democrats, I have to tell you that many of cuts we had to make, at another time, we would've thought unthinkable," said Assembly Speaker Karen Bass.

Ms. Bass also said that local governments "will have to share the pain." The state will take away $4.3 billion from local governments by borrowing from them or redirecting funds that had been earmarked for them.

Groups targeted by the cuts said the spending reductions would batter already-devastated essential services. "It's not a viable situation. As far as we're concerned, we do not have a functioning state government," said Sheila Jordan, superintendent of Alameda County schools, one of the state's largest at about 225,000 students, which has already seen sharp cuts.

"Class sizes go up, programs are being shut down, there are not enough supplies. Wherever you look, whatever we're doing, we're cutting back enormously," Ms. Jordan said.

Local governments, already reeling from their own budget crises, could stand to lose billions in the deal. "That would just be catastrophic," said Don Knabe, chairman of the Los Angeles County Board of Supervisors.

Los Angeles County's roughly $350 million "rainy day" fund stands to be decimated by the state budget cuts because it will be needed to replace the cuts being made to state health and human services programs, Mr. Knabe said. He said Los Angeles County has enough money to last it through October, and by then it plans to implement deep cuts to county programs.

Even if approved, the budget deal won't end California's financial problems. The state remains awash in home foreclosures and an unemployment rate of 11.6%—one of the highest in the nation.

Some positive signs are emerging, such as a resurgence in housing sales in most of the state's markets. But most analysts predict California's recovery will be slow, and that state coffers will remain under pressure because they are highly dependent on personal income taxes, which are now down.
—Jim Carlton contributed to this article.

One time fixes, pulling forward tax income, stealing money from local governments, and fraudulent questionable accounting practices. Why do I get the feeling they'll be back in the exact same bind within a year?

[FireNexus]

I was considering the idea of marijuana legalization in California. While the tax revenue from it would be minimal compared to their deficit, what if they simply controlled the trade of it much like Pennsylvania and Utah control the sale of alcohol? Pennsylvania and Utah both operate companies which are the sole authorized sellers of wine and liquor (and heavily restrict sales of beer). Certainly this would result in a huge financial bonus to California, especially when marijuana tourism is taken into account (which none of the studies I've shown do).

[Erik von Nein]

Hey, as long as we're proposing ideas that'll never work out, why don't we just levy a 100% no-loopholes-allowed tax on anyone who makes above 14,000 a year? Brllnt!

Never mind that any dedicated grower that's large enough to be worth taxing will avoid informing the authorities of his stash, anyway. Where's the incentive for them to do that? They already aren't paying taxes and legalizing it will just ally even more suspicions about them.

Never mind that it'd take years before any decent dedicated bureaucracy was set up and any large growers were officially recognized, so that won't do anything to help the current state budgets.

[FireNexus]

Hey, as long as we're proposing ideas that'll never work out, why don't we just levy a 100% no-loopholes-allowed tax on anyone who makes above 14,000 a year? Brllnt!

Never mind that any dedicated grower that's large enough to be worth taxing will avoid informing the authorities of his stash, anyway. Where's the incentive for them to do that? They already aren't paying taxes and legalizing it will just ally even more suspicions about them.

If you had read the post, instead of skimming it and thinking you know what I was saying, I was referring to the state of California becoming the sole retail distributor for marijuana. Much in the same way as the states of Pennsylvania and Utah operate as the sole retail distributors of hard liquor.

Since the legalization idea has been tossed around in that state as a means of closing the gap, I thought it might be interesting to consider this as a more effective mechanism.

If you're done criticizing something totally unrelated to my post, perhaps that will make it more clear for you, jackass.

Never mind that it'd take years before any decent dedicated bureaucracy was set up and any large growers were officially recognized, so that won't do anything to help the current state budgets.

Of course there would be a delay in the ability of this to close any budget gap, but it could be a major long term positive.

[Lusankya]

Wouldn't decriminalising marijuana decrease the burden on the state's prisons and reduce costs that way in any case? Even if it doesn't earn the state any money, the savings would be damn useful.

[Master of Ossus]

1. California already has "medical marijuana," and you can easily buy a prescription online for between $50 and $100. One of the deans at my old college bought one to see how easy it would be. It took him five minutes and he paid $84 for it.
2. California's had various budget crises virtually every year for the last 20 years. I don't see why that would change with a new budget.
3. That being said, from my quick-fire reading of it it's dramatically worse than anything I've seen since I've lived here, but of course the budget problems this year are far worse than they've ever been in the past, so I guess that must go without saying.
4. I heard on the radio on my way home that various Republican groups are actually suing the state because the budget deal withholds something on the order of $4 billion of funds that were promised to county governments. I'm actually not sure which way I lean on that one, since obviously the state needs a budget that will let them pay their workers and contractors (hopefully not so much UC administrators and legislators), so stalling the budget is really going to hurt, but on the other hand it's not like counties don't have hospitals and workers and contractors to pay.

[The Duchess of Zeon]

Obviously the state seems to be banking on stealing money from the municipalities and counties and then having them raise taxes, I'm guessing, to get around the two-thirds requirement in the House? Double the county sales tax in every county in the state and then that money replaces funds given to the counties, which are diverted to other uses? It seems like the practical effect of it is just to shift the responsibility for raising taxes to the smaller governments.

[Questor]

Obviously the state seems to be banking on stealing money from the municipalities and counties and then having them raise taxes, I'm guessing, to get around the two-thirds requirement in the House? Double the county sales tax in every county in the state and then that money replaces funds given to the counties, which are diverted to other uses? It seems like the practical effect of it is just to shift the responsibility for raising taxes to the smaller governments.

Those governments also need a 2/3 majority to raise taxes. And I think a sales tax increase requires a popular vote.

Another point that I noticed while looking through the old proposed budget (The only detailed one I can find online) is that they may be banking on the federal government to get health care reform done.

If that works, then I would expect the state to almost completely eliminate Medi-Cal, which is a $40 billion dollar program.

Even if that doesn't happen, my math on the non-Medical costs of providing insurance to state employees and retirees that are not yet on Medicare comes to close to $10 billion, and that does not count anyone other than the teachers, direct state employees, and whoever the state considers annuitants. I expect you could double that if you could throw in the local agencies and governments, which all get their money from the state.

I'd really love to have been a fly on the wall in all of those meetings. I am sure somebody brought those numbers up, I just would like to know who it was, and what the responses were.

EDIT: fixed spelling mistakes.

[Questor]

If that works, then I would expect the state to almost completely eliminate Medi-Cal, which is a $40 billion dollar program.

On further research. The general fund portion of this is $15Bn.