2008 December 08 Monday
California State Financial Disaster Approaches

The weather is still highly excellent. But state government infrastructure spending in California is headed for a complete stop due to the budget crisis.

SACRAMENTO — California will have to stop financing nearly all infrastructure projects within two weeks if lawmakers don't immediately solve the state's $11.2 billion budget shortfall, state Treasurer Bill Lockyer warned Monday as legislators met in a rare joint session.

About $5 billion in loans for highway projects, school construction and other public works would be cut off, just as Gov. Arnold Schwarzenegger and others are urging greater investment in such initiatives to help shore up the faltering economy, if the Legislature fails to act.

Cut off. Finito Baby! This ain't no party. This ain't no disco. This ain't no surprise either. Just last week Steve Sailer was predicting that state and local budget crises are going to cause a big cut-back in infrastructure spending even as Barack Obama tries to ramp it up.

California needs over $30 billion to balance its budget for Fiscal Year 2009 and it could get a lot worse than that. California and its counties and municipalities should not be worrying about starting expensive new construction projects. They should be worrying about meeting payroll in 2009 and 2010 for firemen, policemen, schoolteachers, and the like. I wouldn't be surprised if a year from now we see giant piles of Chinese steel sitting on the docks of Long Beach collecting dust while new California construction hiring is postponed indefinitely and Obama's infrastructure money is diverted to keeping current civil servants employed. Teachers and prison guards and the like will be renamed "human infrastructure."

The California budget deficit is going to grow even bigger.

California's budget deficit could reach nearly $28 billion over the next two years unless drastic steps - including raising new taxes - are taken to stem the fiscal bleeding, the nonpartisan legislative analyst's office said Tuesday.


Without bold fixes, the state will have budget gaps of about $22 billion a year through 2014, the analyst said: The budget deficit is so deep that simply cutting spending won't work without devastating funding to key programs such as education and health care.

Actually, the $28 billion figure is over just 19 months according to many news accounts. That's $1.47 billion per month of unsustainable red ink. But that's nothing compared to the $22 billion per year figure which works out to $1.83 billion per month. With 38 million people that works out to about $50 per month per person. But since most of them are poor or children or both we have to expect that the middle and upper class net tax payers (those who pay more in taxes than they receive in benefits) will foot most of the cost. So if you are well paid in California better find a way to spend a couple hundred dollars less per month. Gotta feed the nanny state and the illegal aliens.

Financial disaster coming to palm tree lined boulevards. Actually a ride thru LA is more notable for the enormous quantity of graffiti and other signs of urban decay.

Dec. 8 (Bloomberg) -- California will suffer a “financial disaster” if lawmakers remain deadlocked over how to address a widening budget deficit and a looming cash shortage, Director of Finance Mike Genest said.

The state is on course to start defaulting on debt.

State controller John Chiang said the state could face running out of money by March, be unable to borrow, and be forced to issue the equivalent of IOUs for only the second time since the Great Depression.

Think this is bad? In coming decades the state's demographic deterioration is going to make it much worse. The younger population isn't going to achieve as much educationally or in their careers. Sure, there'll still be a lot of really bright people in Silicon Valley. But they'll have to carry along too many others not so bright and not so high achieving.

There is one big weapon we could use to shrink the California deficit: deportation. But you aren't going to see it mentioned. Libertarians would rather that taxes go up than illegal aliens be deported. They'll claim they prefer smaller government. But we know that immigration from the 3rd World means a bigger lower class and more Robin Hood taxes to support the nanny welfare state. So libertarians favor higher taxes and larger government.

Update: Dan Walters says the California budget shortfall is even bigger than the state government is reporting.

And then there are retiree health costs. New accounting standards require governments to report costs of providing health care to retirees. A year ago, a blue-ribbon commission appointed by Schwarzenegger said state and local governments have a $118 billion unfunded health liability, with the state accounting for $48 billion of the staggering total.

Accumulating unfunded liabilities, accumulating public debt, accumulating private debt, going into hock with the world due to sustained large trade deficits, a deteriorating demographic situation, and assorted other building problems are starting to reach critical mass. The 2010s are going to have features of a long crisis.

Share |      By Randall Parker at 2008 December 08 10:11 PM  Economics Government Costs

Jerry Martinson said at December 9, 2008 11:11 AM:

So what states aren't screwed up then? All the others are either equally screwed up with the same or other issues (civic corruption, outdated infrastructure/industry, brain drain) or they have a backwards, primitive economy mostly based on tourism or agriculture.

Randall Parker said at December 9, 2008 7:43 PM:


Few states are in as bad a shape as California. Only Arizona and New York have budget gaps bigger in percentage terms:

Arizona is expecting a budget gap in 2010 that will exceed 24 percent of its general fund budget. Other states expecting huge budget holes include: New York (20 percent), California (18 percent), Wisconsin (17.2 percent), Minnesota (14.7) and Kansas (14.5 percent), according to the NCSL report.

BTW, StateLine.org delivers the state-level information that gets so neglected in the mainstream national and local media.

Anonymous said at December 15, 2008 10:21 AM:

Here's a post on FreeRepublic that sums up the state's financial problems
which are caused by special characteristics of the state. A pretty good summary.

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