As I post this, California has less than three hours to pass a budget. There is heavy partisan politics at work, including a recall petition by the state Republicans to recall the Democratic Governor.
The California State Budget is the biggest budget among the 50 states. If California were its own country, IIRC the California economy is the fifth largest in the world.
At the same time New Jersey faces a deadline tonight with their budget. It remains to be seen if New Jersey state workers will be told to stay home starting tomorrow because that state is broke.
Last week the Fed cut interest rates (again!) to levels not seen since the Eisenhower Administration. The FED is clearly worried not just about a jobless recovery (meaning the unemployment rate does not go down as the economy begins to recover), but is more concerned about deflation and the possibility that prices could freefall and cause any recovery to stall, if not practically collapse.
Will pragmatic thinking win out among the various states? Has partisan politics degenerated to the point that politicians risk economic crisis’ on state and federal levels? Is any of this significant to raise a cause for concern, or should the average American just – yawn – not concern themself with all of this?
Are the birds coming home to roost? Should I plug my ears with my fingers ( LA LA LA LA LA!)?
We’ve averted such budget games before. However, what worst-case scenarios are possible here? I’m not talking about recall elections or pollies twiddlely winking as the often do. As much as the US economy is a diversified economy, can these conincidental budget games played by partisan egos really cause serious economic damage? Short-term? Long-term? Fast and immediate?
Hmm. I guess every severe downer has its government victim. Way back in the seventies, the last time there was a bear market as severe as this one, it was NYC. If what you post above is correct, sounds like this time it’ll be the entire state of California.
Presuming the above to be a fair representation of reality, it would be tough to see how this wouldn’t cause some kind of tremor. Where it lands on the Richter scale is tougher to gauge, except that it’s safe to say that if my state gov here in NJ went bankrupt, it’d be way lower on that scale than if CA did.
Just tonight I saw stories t Yahoo about how so many states are in a money crunch. Last year in my own state there was a tax revolt that lasted perhaps as long as a couple of weeks. Demonstrations at the state capitol building got really forceful. Finally our budget passed with no raise in taxes. Having a new governor has helped too. But people are sick and tired of government waste.
Look like California needs to cut $38,000,000,000.00 in spending. This will be interesting to watch.
In a way, this is good, since it will show the people of California that they can surivive without a bloated gov’t. Still, it is too bad that things got to this point; A responsible state gov’t would have taken care of this problem, many budgets ago.
I’m completely ignorant about Cali’s budget crisis, but could someone give their opinion on how much (if any) of this budget crisis is due to the apparent high cost of power during the late 90s?
Part of this is being caused by the cost of the electricity deregulation crisis. It would have happened even if we had a good economy right now (although perhaps the crisis helped propel the bad economy, I don’t know), and this is really the first budget to feel the full impact of those costs.
However, just to show you how bizarre Californians can be at times (and I live in California, and I’m a hard-core lefty liberal) many of the bond propostions that was on the ballot in the last election passed, despite the bad economy and the then-looming budget crisis. I voted against all of them, and I thought some of them were worthwile. Don’t just blame the legislature. The people of this state are really irresponsible too.
Or, raise taxes by $38 billion. Of course, there are those who are so opposed to new taxes they would rather see the state go bankrupt and drag the rest of us down with it, than to violate their stiffnecked obstinacy to revenue enhancement.
They would have to raise taxes by quite a bit (~$1,500.00 per person over 18, but then you have to take away the disabled, the extremely poor, etc).
I don’t doubt that some legislators fancy the idea of passing the bill from their bloated programs on to the people, but the people are fools if they accept it. This is a good time for the California legislature (and electorate) to learn a hard lesson about how much you can (and can’t) spend.
Would you agree that the solution lies somewhere in between, in a combination of budget cuts and tax increases? Or do you envision California meeting its obligations through budget cutting alone?
The California State Legislature has two main ways it can raise revenues in a hurry:
It can raise the sales tax
It can raise the DMV registration fee
The Democrats want to raise the DMV registration. The Republicans are saying no.
A 2/3 vote in each house of the Legislature is needed to approve the budget in California.
As for the deadline, the budget is rarely passed by July 1. The difference this year is that the state does not have as much money to borrow on to keep itself afloat. Most likely only until August.
One possible solution is “The Get out of Dodge” budget where the Dems and Reps would agree to a stopgap measure and then try again in December when they might not hate each other as much. Who knows? The specter of the Davis recall has really thrown a wrench in the works.
California politics is very, very, very strange. All of the reforms that the Progressives put in the early part of the 20th Century to reduce the influence of the Southern Pacific, combined with the late 20th Century introduction of term limits has led to some really weird governing.
In an ideal world, budget cuts alone would take care of the shortfall. Heck, in an ideal world, the ranks of the California legislators would be decimated, their bodies hung from poles along the road to LA.
But sadly, in the real world, I realize that short-term income will have to be raised, and that means taxes (most likely; The state could sell land or something, I imagine.) The tax increase should be as small as possible, and as temporary as possible. Of course, it will most likely be neither. Once the money is in the hands of the gov’t, they generally loathe to give it back (except through a favorite pork-barrel project or three).
It doesn’t help things that the Califonia GOP is on a witch hunt for the governor’s office, and thus have an incentive to make things worse, so they can lay the blame on Grey Davis. Geez, guys, wouldn’t it have been easier if you had simply ran a viable candidate in the election last year? :rolleyes:
WTF? California is always in a budget crisis. My gal’s father, who works for the state no less, has been paid in IOUs before.
The state has a balanced budget amendment to the constitution, and therefore, if they can’t pass a balanced budget, the government shuts down, until they do.
Now, as to how we got here. We are still owed 12 billion from the “faked” energy crisis (talk about getting kicked in the nuts by Cheney). The rest was spending that never was reduced after the tech bubble burst, not to mention all of the lost tax income due to unemployment.
Well it affect the US on a whole? I don’t think so. Will all of the other states together with California affect the US on a whole, maybe.