The “On Our Knees” State

The vast majority of States – facing reduced property taxes from declining home values, foreclosed properties combined with reduced sales tax and vaporizing income tax was unemployment rates soared – are dealing with deficits. But no state… not one… faces the massive budget deficit of sunny California . The Jan. 1^st Washington Post: “Gov. Arnold Schwarzenegger labored mightily in 2009 to close a $60 billion budget deficit, hammering out a plan that included $32 billion in spending cuts and $12.5 billion in temporary tax increases… But at year's end, Schwarzenegger was still looking at a combined $21 billion deficit for the current and coming fiscal years, and he was pleading for an $8 billion federal bailout.” It seems they ran all their numbers based on the “previously healthy” economy. Oh well!

California is an ungovernable state where voter-originated ballot initiatives, riding the wave of popular passion with often little attention to long-term consequences, can override the best intentions of any legislature… but particularly a legislature with serious terms limits (imposed by a ballot initiative) that prevents the legislators from remaining in office long enough to have enough experience to deal with the State’s complex issues. Fox example, California ’s had the requirement for two-thirds majority to pass a budget – the result of a ballot initiative; hence the budgets haven’t been remotely passed on time since that passed.

How easy is it to qualify for a ballot initiative in the Golden State ? Pay a registration fee of $200 (and thousands of folks get this far every year) and then gather a pile of signatures: 433,971 if you’re just looking to pass a statute, but 694,354 if you’re after a constitutional amendment. The approximate cost of gathering those signatures is about $1 million for each measure. The legislature can also place such initiatives on the ballot… but the good old “constitutional convention” hasn’t been used since California became a state.

But look at one huge cost that California would have to unravel: state pension plans (for working and retired state workers) offered fixed benefits and relatively short paths to retirement. Over the past decade, according to the Governator himself, the cost of state pensions has increased by an intolerable 2,000%!!! How do you take away what these folks have already worked to earn? And if you don’t how in the world do you pay for these benefits while supporting all of the other critical needs of the state? Or how about this little fact that bothers Mr. Schwarzenegger as well: the State spends 7.5% of its budget on higher education and 11% of that budget on prisons!

The federal government has been loath to get into the state bailout business, because if they do it for one, they may feel compelled to do it for all. But at least the fed can “print money” (not literally, but simply by increasing the M-1 money supply), incur deficits and not face imminent bankruptcy. Okay, you can build up inflation levels until you become a banana republic and need a suitcase-full of cash to buy a cup of coffee. But Californians already feel taxed to death already; record high income tax, sales tax, motor vehicle fees, business taxes… and those corporations able to depart the state without overwhelming disruption are leaving in droves.

The latest high-level defection is defense contractor, Northrop Grumman, which will vacate its Los Angeles headquarters in favor of the Washington , D.C. area next year. The Washington Post (January 4^th) noted: “This doesn't mean a lot of new jobs for the [D.C. area] -- the company plans on moving about 300 people of the 120,000 who work worldwide for Northrop -- but it is a big catch for the region and a tough image blow, at least in prestige, for the battered California economy.” Not to mention the loss of the corporate taxes California so desperately needs. Raise taxes enough and the only folks who’ll stay behind will be the unemployed who can’t afford the moving costs! That’ll take the state out with a big bang!

Republicans hate taxes, and Democrats tend to want to create social programs and union benefits. That combination is increasingly lethal, all across the nation. But California , with its out-of-control ballot initiative system, is… to put it mildly… toast. In an article entitled, Schwarzenegger's New Action Role: Beggar , the local NBC affiliate in the Bay Area noted: “The White House said it would ‘take a look at’ the Governator's latest spare-a-dime proposal. That's what they said last time around. Translation: Don't count on any help from Washington .

“ California needs to solve its problems at home. Schwarzenegger's grab bag of budget fixes -- offshore oil drilling, slashing welfare and in-home healthcare, and cutting public-transit funding from the state gas tax -- wouldn't come close to closing the budget hole… The state budget requires a major restructuring, with a wholesale jettisoning of decades of voter mandates and unfunded requirements at the state and federal level. It's true that California pays more than its fair share of federal taxes -- but that's been the case for years, and it's not something that will be solved in Sacramento.” NBCbayarea.com (December 29^th)

The January 6^th Los Angeles Times does suggest that California is getting short-changed by the feds, but don’t expect any miracles any time soon: “Schwarzenegger asked lawmakers to help him push the federal government to fix an ‘unfair’ system in which California received 78 cents back from each dollar it paid in federal taxes, while Texas received 94 cents, Pennysylvania got $1.07 and Alaska got $1.84. Meanwhile, as a border state, he said, the state incurs extra costs relating to immigration, along with other federal mandates. Now, he said, the new federal healthcare bill would ‘pile billions more onto California .’” Oh well! Got a sinking feeling about this cause.

How is your state doing with these issues? And what do you think the solutions should be? Realistically… some that can be sold to the voters and that will in fact work?

I’m Peter Dekom, and I’ve love to know the answers.