# Will A California State Budget Meltdown Affect The Entire National Economy? **URL:** \ **Category:** Great Debates\ **Created:** [July 1, 2003, 4:21am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505 "2003-07-01T04:21:04Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [July 1, 2003, 4:21am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/1 "2003-07-01T04:21:04Z")
> [@](#): > > SACRAMENTO, Calif. - With the state on the verge of a financial meltdown, California lawmakers struggled Monday to break a partisan impasse and meet a midnight deadline for passing a new budget. > > … > > The state faces a record $38.2 billion budget shortfall and is operating for the first time completely on borrowed money. State Controller Steve Westly says the state only has enough cash to get through mid-August, and officials say the state cannot borrow any more until a new budget is passed. > > Without a new budget by the deadline, the state is unable to legally make millions of dollars in on-time payments to schools, community colleges, courts, state suppliers and others. Source: [http://story.news.yahoo.com/news?tmpl=story&cid=519&ncid=716&e=4&u=/ap/20030701/ap\_on\_re\_us/state\_budgets](http://story.news.yahoo.com/news?tmpl=story&cid=519&ncid=716&e=4&u=/ap/20030701/ap_on_re_us/state_budgets) 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](http://www.cnn.com/2003/ALLPOLITICS/06/30/new.jersey.ap/index.html) 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. > [@](#): > > As the rate target has fallen, some economists and analysts have worried that the Fed could run out of interest rate ammunition with which to stimulate the economy. > > … > > The odds of growth picking up and it stalling are “roughly equal,” the committee said. On the other hand, the risk “of an unwelcome substantial fall in inflation exceeds that of a pickup in inflation from its already low level,” the statement said, indicating that the officials continue to worry about deflation – a broad decline in the overall level of consumer prices. > > Furthermore, the committee added, the concern about deflation is likely to exceed any worry about rising inflation “for the foreseeable future.” > > Officials consider the probability very low that deflation will occur, but the damage that might result from such an episode could be severe, they have said. > > The danger is that when the overall level of prices is falling, firms might have to cut wages, borrowers would find debts harder to repay and the values of assets such as stocks and houses could fall. The results could be economically devastating. Source: [http://www.washingtonpost.com/wp-dyn/articles/A33625-2003Jun25.html](http://www.washingtonpost.com/wp-dyn/articles/A33625-2003Jun25.html) 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? ---
**Author:** ![pantom](https://avatars.discourse-cdn.com/v4/letter/p/34f0e0/32.png) [@pantom](https://boards.straightdope.com/u/pantom)\ **Post date:** [July 1, 2003, 4:41am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/2 "2003-07-01T04:41:08Z")
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. ---
**Author:** ![Zoe](https://avatars.discourse-cdn.com/v4/letter/z/a4c791/32.png) [@Zoe](https://boards.straightdope.com/u/Zoe)\ **Post date:** [July 1, 2003, 4:54am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/3 "2003-07-01T04:54:46Z")
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. ---
**Author:** ![Brutus](https://avatars.discourse-cdn.com/v4/letter/b/91b2a8/32.png) [@Brutus](https://boards.straightdope.com/u/Brutus)\ **Post date:** [July 1, 2003, 4:57am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/4 "2003-07-01T04:57:47Z")
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. ---
**Author:** ![Clu](https://avatars.discourse-cdn.com/v4/letter/c/22d042/32.png) [@Clu](https://boards.straightdope.com/u/Clu)\ **Post date:** [July 1, 2003, 5:03am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/5 "2003-07-01T05:03:38Z")
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? ---
**Author:** ![BrightNShiny](https://avatars.discourse-cdn.com/v4/letter/b/7bcc69/32.png) [@BrightNShiny](https://boards.straightdope.com/u/BrightNShiny)\ **Post date:** [July 1, 2003, 5:06am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/6 "2003-07-01T05:06:09Z")
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. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [July 1, 2003, 5:09am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/7 "2003-07-01T05:09:32Z")
> [@](#): > > _Originally posted by Brutus_ > **Look like California needs to cut $38,000,000,000.00 in spending.** 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. ---
**Author:** ![BrightNShiny](https://avatars.discourse-cdn.com/v4/letter/b/7bcc69/32.png) [@BrightNShiny](https://boards.straightdope.com/u/BrightNShiny)\ **Post date:** [July 1, 2003, 5:15am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/8 "2003-07-01T05:15:33Z")
I don’t think they’re allowed to raise new taxes without putting it to a vote. It would never pass, of course. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [July 1, 2003, 5:17am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/9 "2003-07-01T05:17:34Z")
The legislature can raise taxes without a vote of the people. Whether they have the political stones to actually do it is debatable. ---
**Author:** ![BrightNShiny](https://avatars.discourse-cdn.com/v4/letter/b/7bcc69/32.png) [@BrightNShiny](https://boards.straightdope.com/u/BrightNShiny)\ **Post date:** [July 1, 2003, 5:19am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/10 "2003-07-01T05:19:41Z")
Ah, I didn’t realize that. Is it just local governments that have to put taxes to a vote? ---
**Author:** ![Brutus](https://avatars.discourse-cdn.com/v4/letter/b/91b2a8/32.png) [@Brutus](https://boards.straightdope.com/u/Brutus)\ **Post date:** [July 1, 2003, 5:31am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/11 "2003-07-01T05:31:20Z")
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. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [July 1, 2003, 5:52am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/12 "2003-07-01T05:52:52Z")
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? ---
**Author:** ![BobT](https://avatars.discourse-cdn.com/v4/letter/b/8e8cbc/32.png) [@BobT](https://boards.straightdope.com/u/BobT)\ **Post date:** [July 1, 2003, 5:57am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/13 "2003-07-01T05:57:33Z")
The California State Legislature has two main ways it can raise revenues in a hurry: 1. It can raise the sales tax 2. 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. ---
**Author:** ![Brutus](https://avatars.discourse-cdn.com/v4/letter/b/91b2a8/32.png) [@Brutus](https://boards.straightdope.com/u/Brutus)\ **Post date:** [July 1, 2003, 6:08am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/14 "2003-07-01T06:08:06Z")
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). ---
**Author:** ![andymurph64](https://avatars.discourse-cdn.com/v4/letter/a/a88e57/32.png) [@andymurph64](https://boards.straightdope.com/u/andymurph64)\ **Post date:** [July 1, 2003, 2:14pm UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/15 "2003-07-01T14:14:20Z")
California should just roll back their spending to 1995 levels, adjusted for inflation and population increase %. What? They increased spending far more that inflation and population increase? Why would they do that? Are they stupid? Guess some cutting is in order. Why organizations/people increase their spending wildly and then object when it comes home to roost is beyond me. ---
**Author:** ![andymurph64](https://avatars.discourse-cdn.com/v4/letter/a/a88e57/32.png) [@andymurph64](https://boards.straightdope.com/u/andymurph64)\ **Post date:** [July 1, 2003, 2:16pm UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/16 "2003-07-01T14:16:22Z")
> [@](#): > > tax increase should be as small as possible, and as temporary as possible ROFLMAO! When have you ever seen a tax repealed? We’re still paying a Spanish-American War tax for Pete’s sake. Taxes are never temporary. They may say it is temporary to get it passed but it will never, ever go away. ---
**Author:** ![rjung](https://avatars.discourse-cdn.com/v4/letter/r/45deac/32.png) [@rjung](https://boards.straightdope.com/u/rjung)\ **Post date:** [July 1, 2003, 8:01pm UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/17 "2003-07-01T20:01:44Z")
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: ---
**Author:** ![Gangster\_Octopus](https://avatars.discourse-cdn.com/v4/letter/g/a8b319/32.png) [@Gangster\_Octopus](https://boards.straightdope.com/u/Gangster_Octopus)\ **Post date:** [July 1, 2003, 11:11pm UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/18 "2003-07-01T23:11:47Z")
Just my opinion, but a fully Consitutional recall election hardly seems like a witch hunt. ---
**Author:** ![squeegee](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/squeegee/32/14537_2.png) [@squeegee](https://boards.straightdope.com/u/squeegee)\ **Post date:** [July 2, 2003, 1:05am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/19 "2003-07-02T01:05:23Z")
> [@](#): > > \*Originally posted by andymurph64 \* > When have you ever seen a tax repealed? Sigh, such ignorance. [Montana Inheritance Tax Repealed!](http://www.kaimin.org/Nov00/11-8-00/news15_11-8-00.html) [Cheaper skies after Ansett tax repealed!](http://www.smh.com.au/text/articles/2003/06/10/1055220601096.htm) [Luxury Tax Repealed for Auto Equipment for Disabled Persons!](http://www.unclefed.com/Tax-News/1993/Nr93-67.html) [Excise tax on **malt liquor** ; deficiency account; credits; refunds – REPEALED!](http://janus.state.me.us/legis/statutes/28/title28ch11sec0.html) [Motor Fuel Tax Repealed!](http://www.state.nd.us/lr//cencode/T57C41.pdf) [North Carolina Inheritance Tax Repealed!](http://www.mayer-riser.com/Articles/estplan/ncinhtxarticle.htm) [Travel trailer tax repealed!](http://www.easttexasnews.com/story3_5_4.htm) [Alaska Gross (oil) Production Tax – Repealed!!](http://touchngo.com/lglcntr/akstats/Statutes/Title43/Chapter55/Section010.htm) [Idaho Estate and Transfer Tax – Repealed!](http://www3.state.id.us/oasis/H0250.html) [UNINCORPORATED BUSINESS TAX REPEALED!](http://www.cga.state.ct.us/2001/pub/Chap213.htm) [Telecommunications service company tax repealed!](http://www.cga.state.ct.us/2001/pub/Chap210a.htm) [Amusement places tax repealed!!](http://www.cga.state.ct.us/2001/pub/Chap215.htm) [Motor Vehicle Excise Tax, Repealed!](http://legis.state.sd.us/rules/rules/6448.htm) And [on and on.](http://www.google.com/search?q=%22tax+repealed%22&hl=en&lr=&ie=UTF-8&oe=UTF-8&start=10&sa=N). Repealed tax after repealed tax. Gosh taxes are never repealed! > [@](#): > > We’re still paying a Spanish-American War tax for Pete’s sake. Cite? ---
**Author:** ![MrTuffPaws](https://avatars.discourse-cdn.com/v4/letter/m/f475e1/32.png) [@MrTuffPaws](https://boards.straightdope.com/u/MrTuffPaws)\ **Post date:** [July 2, 2003, 1:16am UTC](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505/20 "2003-07-02T01:16:49Z")
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. [Next page](https://boards.straightdope.com/t/will-a-california-state-budget-meltdown-affect-the-entire-national-economy/185505.md?page=2)