California is %^&*@#.

Submitted by Bernard Guerrero on Wed, 05/07/2008 - 1:09pm. Tags:

Economics and Business

California is facing a cash crisis this summer, putting pressure on elected officials to submit an on-time state budget or risk asking taxpayers to pay a premium on loans.

In the past, the state has been able to pay its bills despite projected deficits by borrowing money internally from some state special funds and by selling short-term notes on Wall Street.

But a lack of cash reserves this year combined with lagging revenues has led officials to predict that the state will run out of cash as early as August, giving lawmakers a smaller-than-expected window to strike a budget deal.

From the Sacramento Bee.

What's the problem? They're numerous:

1) The population doesn't like getting taxed on property. (see Prop 13)

2) The population does like it's services, though. (Whether they're worth what is being paid is another matter, but not an immediate source of the problem at hand.)

3) The public service unions have negotiated generous pay and retirement packages, based in part on the high property values that have obtained in CA and the resulting difficulty one has living there.

4) But while the union contracts are fixed, CA property values are not. And nobody's gonna be looking to put up big fee-generating projects in the Inland Empire for a while.

5) Growing out of it is not a short-term option. The national economy is weak (whether or not a formal recession is ever declared by the NBER), CA income & business taxes are already high and CA regulation makes the business environment weaker than it might otherwise be.

6) Borrowing is becoming less of an option, as the bursting of the property bubble, economic weakness and the concomitant shocks to the financial system have made banks gun-shy of big loans to shaky institutions.

All in all, it looks like a big poop-sandwich, and nobody wants to take the first bite, not the tax-payers, the service consumers, the union producers nor the Dem & GOP politicians who represent and therefore balance out the competing interests of the former three. Things look ugly....

Edit: In case you happen to be one of the suckers caught in this perfect storm, here's a DB to check up on your friendly civil servants' salaries. I'm not from the government, and I'm here to help. :^)
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The ultimate result of shielding man from the effects of folly is to people the world with fools. -Herbert Spencer

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There's a 10-15% premium at Lake Tahoe (#93088)

by tomsyl on Wed, 05/07/2008 - 4:52pm

between a house or condo on the Nevada side and a very similar dwelling on the California side. Part of it is the taxes, but the main reason is that people just don't want to live in California, period. I bet half of the residents in Incline Village are transplanted/retired Californians. I know a lot of people who've moved out of the state, but only one or two who have moved to California from elsewhere.

In the land of the blind, the one-eyed man is king.

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Domestic government is %(%^* (#93038)

by dionysus on Wed, 05/07/2008 - 1:47pm

Reagan had people fooled for a little while that this stuff would just be provided for free if we cut taxes on the rich, but the bill's coming due. Take a look at the federal budget for domestic discretionary spending over 6 years and compare the growth rate (negative after inflation) with the amount of money being spent on missile defense, or amphibious landing vehicles.

Listen, amphibious landing vehicles are cool. But we're strangling the fundamental pillars of our society to buy these toys? When's the next assault on Normandy and why wouldn't we just bomb the eff out of everything from near-orbit instead?

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Entirely different question. (#93055)

by Bernard Guerrero on Wed, 05/07/2008 - 3:28pm

The Feds ultimately have recourse to the printing press and can monetize their problems away, if at the cost of inflation. (Though depending on your levels of debt and the stability of your job, a nice dose of inflation might be just what the doctor ordered, anyway.)

Cali, alas, does not have that convenient out, nor can they devalue against the rest of the country in order to up exports and kill imports. They are in an entirely different world of hurt.

The ultimate result of shielding man from the effects of folly is to people the world with fools. -Herbert Spencer

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Oh, totally, (#93096)

by dionysus on Wed, 05/07/2008 - 5:03pm

And MA, where I'm plugged into state gov't (but not for too much longer) is in a similar world. Similar demographics, ultrarich intellectuals and blue-collar "hey we just live here" folks, what makes it even worse for us is our constitution by virtue of anachronistic language predating the income tax, pretty explicitly bans a graduated income tax (how's that for linguistic coincidence).

So either the state has to hit all the people who are hurting, or it has to continue cutting. Local aid's lagged inflation to every municipality in MA for years now, same in Cali I bet and where the Federal government comes in is... where's the help? 35-40% of my paycheck goes the federal government, they're borrowing above and beyond that, and they can't even trickle down a decent amount for the states to spend on things government actually does? Like, education, policing, etc?

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