Shocking Deficit News In CA

[Lucky]

Californians went through the election being told that the state faced a $19 billion deficit. Now that the election is over, we are told it is really $25 billion...not exactly small change in a state that is broke.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/11/11/MNJA1GA39R.DTL&tsp=1

[MsGuy]

Californians will not face up to their deficit/governance problems until folks refuse to buy any more of their bonds and then only if the rest of the country refuses to bail them out.

Just one guy's opinion.

[RA1]

MsGuy-

Your comments could very well be true for any number of states. I am expecting a LOT of reform and fairly soon.

Best regards,

RA1

[KYTOP]

I saw this opinion column in the WSJ. I'm not sure if it is funny or sad but, I think there may be some truth to it.

California: The Lindsay Lohan of States

http://online.wsj.com/article/SB10001424052748703506904575592612400443370.html

[Guest zipperzone]

I saw this opinion column in the WSJ. I'm not sure if it is funny or sad but, I think there may be some truth to it.

California: The Lindsay Lohan of States

http://online.wsj.com/article/SB10001424052748703506904575592612400443370.html

If they think Jerry Brown is their way to salvation they should start pouring the Kool-Aid right now.

[TampaYankee]

One of my problems with liberals, the biggest problem, is that when times are good and tax receipts are high they come up with programs that are nice for citizens or segements of society but less than essential. (My bar for essential is not impossibly high.) Then people structure their lives around those programs whether they are recipients of benefits or goverment employess or NGO employees that depend on that program for their job. When times go bad these programs have to be tanked causing problems for all involved -- sometimes unnecessary problems in that maybe employess would have had other, more robust jobs, and program recipients wouldn't have placed themselves in a position to be dependent on that program.

This certainly does not apply to all programs in my mind, but there are programs created in good times that would not be considered in lesser times. In the long run it is more compassionate to be selective in creating government programs.

That being said, there is good reason to create some programs that are necessary in good and bad times alike. I'll argue that elsewhere one of these days.

[RA1]

You mean liberals like to spend other people's money? What a novel idea. Of course, all pols like to spend other people's money, don't they?

People seem to forget that even though there are government services worth spending money upon, the government makes no products; it only spends money. There is no free lunch, although seemingly a lot of people either think there is or wish there were.

Best regards,

RA1

[TampaYankee]

You mean liberals like to spend other people's money? What a novel idea. Of course, all pols like to spend other people's money, don't they?

People seem to forget that even though there are government services worth spending money upon, the government makes no products; it only spends money. There is no free lunch, although seemingly a lot of people either think there is or wish there were.

Best regards,

RA1

No, actually I'm trying to get past the ususal right-wing/left-wing dialogue to make a deeper point that too much ill-trageted nice-but-not-essential spending actually makes things worse for some groups in bad times than maybe they had to experience.

[RA1]

For some reason we seem to have a problem agreeing some percentage of the time even though I am thinking I agree when I post a reply. But then you reply suggesting otherwise. NP for either one of us to do so, but it is sometimes disconcerting to think that another does not "get" what I am trying to say or vice versa.

Best regards,

RA1

[lookin]

I think the issue goes beyond party politics, and perhaps beyond politics itself. At least the way we currently practice politics in this country. I think the issue that needs to be debated right now is what kind of society we want to be.

If we want to care for all of our citizens, then I think we can decide to tax ourselves in pursuit of this ideal. If we decide it's every man for himself and the devil take the hindmost, then taxes will be lower and we can all learn to live in that kind of world. But, until we decide that fundamental issue, we're just going to be reshuffling soundbites and hiding behind party labels. And that's exactly what I think is happening now.

Personally, I'd prefer to live in a society where every one of our citizens is housed, clothed, well-fed, healthy, and educated. I'd be proud to live in that kind of society, and would be willing to reach deeper into my pocket to pay for the privilege. If that makes me a 'liberal' in the pejorative sense of the word, so be it.

If someone else takes the 'I've got mine and the hell with you' position, I'd prefer he step forward and actually say so, rather than hide behind some 'compassionate conservative' label, whatever that means.

While I think this kind of national debate is absolutely necessary if we are to move forward as a country, I must confess that I don't see anyone on the national political stage stepping forward to lead the debate. I think Obama has come closer than anyone in recent times, but he has been met with nearly insurmountable resistance.

Therefore, my personal plan is to rein in my definition of 'society' to the state or local level. For example, I'm impressed by what San Francisco has accomplished in a few short years with the Healthy San Francisco program. I'm used to seeing blurbs on restaurant menus to the effect that 'a dollar of your bill is going to provide health care for all of our employees'. Fine. I recently read of a health clinic being set up and staffed by volunteers who have retired from the health care profession. With the City and County of San Francisco working to show it can be done, then perhaps similar programs can be picked up by the state and, one day, by the nation.

Once we decide what kind of society we want to be, then it will be time to put together the budget/economy that gets us there. When we do get around to putting together a budget that reflects our values, then I think it's absolutely necessary that we figure out how to support our values in good times and in lean times. In my opinion, values are values and should not be abandoned because we find ourselves in the inevitable economic downturn. And that will necessarily lead us to a budgeting process that is based on surpluses as well as deficits.

A budget that allows for good times and bad times is not revolutionary by any stretch of the imagination. It's the same process my parents used to keep our family thriving, and it's the same process I use today. Rather than a deficit that's 10% of the GDP, we need a surplus that's 10% of the GDP. Or 15% in a good year. We need to erase our deficit and interest expenses, and build a surplus that will keep us housed and fed when times are tough. I'm not saying that it will be easy to make that transition, but I am saying that it will be impossible if we don't first decide that it's necessary. I think we can make that decision today, and then start down the path to get us there.

Building a surplus won't be easy. It's been more than a decade since we were even heading in the right direction. But two things are clear, at least to me: (1) it will require higher rather than lower taxes, and (2) it will be necessary to look at military spending in addition to so-called 'entitlement' spending.

As always, I welcome other views and the more facts, the better. Soundbites we've got plenty of.

[TampaYankee]

I think the issue goes beyond party politics, and perhaps beyond politics itself. At least the way we currently practice politics in this country. I think the issue that needs to be debated right now is what kind of society we want to be.

I believe you are right on with this perspective. I also believe that we are nowhere close to a meeting of the minds regarding what kind of society we want at this point in time. In addition, my views align very much with yours regarding what kind of society we seek.

The problem is that we have two countries in the U.S.. Not suprisingly it breaks along the red state/blue state lines. Not perfectly but very strongly nevertheless. All one needs to do is look at the political map. If were a more homogenous country, then the states would be purple with the conservative and liberal voters spread about. As it stands, the Coasts are blue, the Heartland is red and national elections are determined by 4 or 5 swing states where the electorate is more homgenous than the country at large. A smallish group of independents swing back and forth depending on the times and the national issues.

The coasts are more cosmopolitan, more amenable to and effected by cultural change inpart because they are the primary geographic source of cultural change, more of a melting pot, more varied business interests. Most travellers and imigrants settle along the coasts. The population is denser along the coasts. More travel exists within coasts and between coasts than between the coasts and the heartland.

The Heartland is more connected to the America of fifty and hundred years ago. It is more insulated from foreign influence, remains rooted more closely to the agricultural past even though the family farms are mostly replaced by corporate farms. It certainly has less of a cosmopolitan bent. I suspect that the population generally is less mobile with respect to changing residence than that along the coasts, although I have no proof of that.

The problem is that there was more equality and effective compassion in the America of 50-100 years ago and much more 225 years ago than there is today. There may be more in the Heartland today than on the Coasts in some respects, maybe, and definitely less in other resepcts. Compassionate care was built into the structure of society way back then. It has been, if not lost then greatly diminshed, by modern technology and economy. The rich and the poor were in closer proximity to each other in the past and depended on each other much more. The connection has been lost to the detriment of the poor. Government and charities have to breach that modern day divide if compassion is to remain a hallmark of the American Character.

I expect that many will reject this thesis but I will have more to say soon why I believe it has some merit.

[Guest Conway]

Californians will not face up to their deficit/governance problems until folks refuse to buy any more of their bonds and then only if the rest of the country refuses to bail them out.

Just one guy's opinion.

I fear that this may become a problem for our federal government bonds, too. We must get spending and the deficit under control.

[MsGuy]

I fear that this may become a problem for our federal government bonds, too. We must get spending and the deficit under control.

Oddly enough, Conway, I came back to this thread specifically to say just that. For the first time in my life I've begun to question whether the US political system as a whole is slipping into the kind of disfunctional fiscal craziness we see in so many states.

[RA1]

One of the problems is that all too many people would rather substitute dollars for caring. Even folks who make relatively modest amounts of money seem to want to give someone a couple of dollars rather than actually do something to help them. Even if that means buying a cup of coffee and listening for a few minutes or just letting them know you care.

Unfortunately, it either started with or spread to the federal government as well as the state governments. Those chickens are about to come home to roost.

I view it as a wide spread loss of "old time" values. Clerks are surly, drivers are mean and abusive both in language and hand signals, etc. It doesn't take any longer to do the job right than it does to waste time and wish you were somewhere else.

I especially have a problem with "society" giving money to folks. That does not give them self esteem, a sense of accomplishment; it only enforces the idea that they can get something for nothing. I don't look at charity as looking down on folks. We all have needed help of one kind or another before and will again. I promise.

Have I personally been quilty of some of the above? Yes. I have been known to give gas money to a stranger who gave me a sob story in a hospital parking lot. I have no idea if those persons were lying or not and don't spend much time worrying about it. But, if they truly were in need because a relative had just died, I should have taken more time and tried to comfort them. But, I didn't.

I don't know if we can go "back" or how to do it if we can but I don't like "now" very much or the foreseeable future.

Not everyone can be or needs to be a millionaire. However, we all do need honest work and the emotional support that we are doing something worthwhile.

Best regards,

RA1

[Guest zipperzone]

I view it as a wide spread loss of "old time" values. Clerks are surly, drivers are mean and abusive both in language and hand signals, etc.

Unfortunately we no longer live in a "Norman Rockwell World". The covers of The Saturday Evening Post depicted a life that does not exist today and will never return. We just have to get over it and move on however distasteful that may be.

[lookin]

Government and charities have to breach that modern day divide if compassion is to remain a hallmark of the American Character.

I expect that many will reject this thesis but I will have more to say soon why I believe it has some merit.

No rush, but I very much look forward to hearing it.

[BiBottomBoy]

They'd save money if they let Phil Spector out of prison and stopped using the legal system to hassle Lohan.

Plus, you know, gay marriage would bring in a lot of sales tax revenue.

Though, the most effective way to fix the deficit would be to simply tax cocaine and boob jobs in Los Angeles.

[lookin]

They'd save money if they let Phil Spector out of prison and stopped using the legal system to hassle Lohan.

Jerry, is that you?

Plus, you know, gay marriage would bring in a lot of sales tax revenue.

Though, the most effective way to fix the deficit would be to simply tax cocaine and boob jobs in Los Angeles.

[lookin]

A different take on California, this time with a few facts.

The truth about California

Commentary: Maligned state is actually saving the rest of us

By Brett Arends, MarketWatch

BOSTON (MarketWatch) — Can everyone please stop talking total nonsense about the California budget?

I know that facts and truth seem to be optional these days. I know that in the exciting new world of infinite media everyone can choose to believe whatever fantasies they want. But in the case of California, it's getting on my nerves.

Last week Chris Whalen, the high-profile analyst at Institutional Risk Analytics, caused a stir by arguing California was going to default on its debts.

"I think they're going to default… I think eventually the debt will have to be haircut," he told Henry Blodget, the former dot-com analyst and now editor of Business Insider. "I don't think the Republican Congress is going to sign on for a bailout of California." Default was "inevitable," Whalen added, and suggested Sacramento might have to start issuing its own currency.

Alarming stuff. But when I e-mailed Whalen, asking him for specific calculations, none were forthcoming.

"My general comments have to do with my guess as to the impact of mounting foreclosures and flat to down GDP on state revenues," Whalen replied.

Do the math

Your guess? These are important problems, to be sure. But do you have any actual numbers?

"Revenues fall and mandates rise to the sky," he wrote. "You do the math."

Er, no, actually. It's your assertion. You do the math.

Whalen blamed the matter on Blodget.

"I am a bank analyst," he wrote. "I have not written anything on this. My comments have taken on a life all their own… This is all Henry's fault. Call him."

Some prediction. Meanwhile Blodget chimed in on the e-mail exchange: "It's a bold prediction! Don't back down now!"

Bah. Welcome to the media world in 2010.

But this is hardly an isolated case. California bashing is everywhere these days — especially since Californians had the temerity not to vote Republican a few weeks ago.

You've probably heard a variant of the following storyline:

California is a basket case. The Greece of America. Decades of crazy liberalism and runaway spending have crippled the economy. Wealth creators are fleeing in droves. The people left are spending themselves into rack and ruin. They can't balance their budget, once again, so they are asking the rest of us for a bailout. And they even voted for Jerry Brown, a Democrat! It's time we said enough is enough. No bailout for California! And get out of their muni bonds while you can — they're going to default.

Basket case

It's persuasive. You can hear it anywhere. But it's total hogwash. You might just as well believe that California is inhabited by pixies from the planet Mars, or that the budget problem in Sacramento has been caused by a giant sea monster destroying downtown San Diego.

It's not just slightly wrong. It's almost totally wrong.

California's a basket case? The state has one of the highest living standards in the country, yet over the past 10 years the economy has still grown much faster, per person, than the national average. According to the U.S. Bureau of Economic Analysis, it's up 15% — compared to 8.9% for the U.S. overall.

It's grown faster than low tax neighbors like Arizona, Utah or New Mexico. It's grown three times faster than Texas.

And this was from 1999 through 2009: In other words from the peak of the dot-com years through the depths of the recession. It managed this growth despite the double blows of the tech and housing busts.

Most of the states that have grown faster than California during that time are farm states, riding an incredible boom in agriculture prices.

Fact.

Venture dollars

Back in the Silicon Valley glory days, in the late 1990s, California attracted an incredible 42 cents of every venture capital dollar invested in America. Ah, those were the days — when the private sector was still willing to back California with its own money. As any conservative will tell you, that's the real voting in the economy.

How far has California fallen from those giddy days?

According to the latest data from PricewaterhouseCoopers and the National Venture Capital Association, in 2010 California just got a miserable, er, 50 cents of every venture capital dollar invested in America.

That's right. Venture capitalists are putting a bigger share of their money into California today than they were in 1999. Wow. What a failed state. What a basket case. Will the last person left please turn out the lights?

Don't expect to read about this at the far-right Manhattan Institute or the National Review. Don't expect to read a column about it from George Will anytime soon.

Are wealth creators fleeing? I keep hearing this. Did Apple Inc. and Google Inc. just relocate to Oklahoma? Is Twitter being run from Alabama? When Mark Zuckerberg left Harvard to run Facebook full-time, did he open shop in "low cost" Utah?

During the past decade, one of the biggest reasons its residents left California was simply because of the astronomical cost of housing.

Tax base

Now let's talk about taxes. This is where the lies really earn a Ph.D — as in "piled high and deep."

The best study of state and local tax burdens comes from the venerable Tax Foundation, an independent non-profit that's been acting as a taxpayers' watchdog in Washington since 1937. The Tax Foundation is non-partisan, but by the nature of what it does it leans politically to the right.

According to them, as of 2008 (the most recent year analyzed) state and local taxes in the average state came to about 9.7% of the annual state economy.

What was it in crazy, liberal, communistical, socialistical, un-American, soviet-style California?

Er, 10.5%.

That's right. The burden was all of 0.8 percentage points higher than the average.

Higher wages

Paging Leon Trotsky!

In the late 1990s, when California was riding high, it was...10.6%. Thirty years ago, when even Meg Whitman thought it was a wonderful place to work, start a family, and hire an illegal immigrant to raise your kids, it was...10.1%.

You will occasionally hear horror stories about "public sector teachers" in places like "San Francisco" (shudder) earning, say, $100,000 a year.

I've never understood why it's wrong for a teacher to earn a good salary. The same people who wouldn't blink at the news that a Wall Street banker made $20 million anthraxing our economy is horrified that a teacher makes $100,000. But even putting that issue aside, it's worth remembering that wages are higher in San Francisco for a very simple reason.

It costs more to live there. A lot more.

According to the authoritative ACCRA cost of living index, a $100,000 income in San Francisco will only buy you the same living standard as a $55,000 salary in places like Austin, Texas, or Little Rock, Arkansas. Do we hear horror stories about teachers in Texas earning $55,000 a year?

But if you think the lies stop there, think again. Because we haven't even gotten to the biggest of all.

That California "bailout."

There's no such thing.

California bails us out. It has been bailing out the rest of America since, oh, about 1849 — before it even joined the union.

Californians are so productive that every year they send billions of dollars in surplus dollars to the rest of America. Year after year they have sent vastly more in federal taxes than they ever get back in federal spending.

California isn't our Greece, it's our Germany. It isn't Little Orphan Annie. It's Daddy Warbucks.

Fact.

The conservative-leaning Tax Foundation, which tracks the data, calls this surplus a "fiscal transfer." I call it a bailout.

The numbers are simply staggering. In the quarter century through 2005 (the most recent year for which we have data), Californians bailed out the rest of America to the tune of about $620 billion in today's dollars. In 2005 alone it came to nearly $50 billion.

That is 30 times next year's forecast "budget shortfall" in Sacramento. The only reason California has a budget problem at all is because they have, foolishly, spent so much money subsidizing everyone else.

If it weren't for that, California could cut its state and local taxes by around $1,300 a person. That's a $1,300 tax cut for every man, woman and child. Hmmm. Funny you never read about that anywhere, isn't it?

Meanwhile, take with giant fistfuls of salt those self-serving claims of fiscal rectitude you're apt to hear from politicians in other states, especially in the South and the West. These states haven't balanced their own budgets with their own money in living memory. Without bailout money from states like California, New York and New Jersey, their taxes would be much higher and their citizens poorer.

But don't expect to hear any of this from California bashers — least of all those on the right. After this November's electoral humiliations of Meg Whitman and Carly Fiorina, the Republican Party is putting away the kid gloves and getting out the knife.

Could California really default? Run the numbers.

State debt costs come to just $6 billion a year — a fraction of the $90 billion-plus budget. Under the state Constitution, the interest on the debt gets paid second, after the $36 billion that goes to K-12 education.

Certainly it would be foolish to be complacent. And there are serious problems with long-term budget commitments, especially for the retirement and health care benefits for teachers and other public employees. Future cost growth with have to be restrained, and presumably some planned benefits will end up being renegotiated.

But how big are these costs in California? The non-partisan Legislative Analysts' Office in Sacramento estimates there's a $136 billion gap in the state pension and benefits system. It may work out to more or less. But that's the actuarial figure at the moment.

Size of the state economy? Oh, $2 trillion a year. That's 14 times the size of this gigantic pension-fund gap.

But don't expect any of these facts to surface when Washington starts talking about a California "bailout." This is 2010. Inconvenient facts are optional.

- Brett Arends is a columnist for MarketWatch and The Wall Street Journal, based in Boston.

[MsGuy]

I'm sure these reforms won't magically solve all Cali's problems but they do seem to be at least a half step in the right direction.

"Two upcoming changes will remake California elections, but it's not clear if either major party will benefit.

The state is using an independent citizen's commission to redraw the boundaries of legislative and congressional districts, after voters stripped that power from the Legislature. California also is moving to open primary contests for congressional, legislative and statewide offices. Voters will be able to choose candidates from any party, with the top two vote-getters heading to the general election." (Washington Post)

Those two, plus being able to pass a budget by majority vote, ought to nudge state politics in a more sensible direction.