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2008 December 10 Wednesday
California Budget Deficit Grows Even Bigger

It keeps getting worse.

Gov. Arnold Schwarzenegger said California's budget deficit has widened by another $3.6 billion in just the past few weeks amid a worsening economy, and that the total shortfall of an estimated $14.8 billion will keep climbing until the state legislature acts.

The state is only 2 and a half months away from running out of money.

By the end of February, the governor said, the state will be out of cash and forced to pay its bills with IOUs. The state's projected budget gap through mid-2010 now stands at more than $30 billion.

Recent balanced budgets were only balanced in name, not in substance.

Over the past few years, state budgets have been "balanced" with borrowing, raiding voter-designated funds, delaying payments, creative bookkeeping and a lot of wishful thinking about future revenues.

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.

But those percentages were calculated before the most recent growth in California's deficit. By my calculation California has just about pulled even with Arizona. Also, California has played lots of games with trying to make budgets balance in recent years that put it in worse financial condition than states that haven't been delaying payments and engaging in creative bookkeeping.

Share |      By Randall Parker at 2008 December 10 11:55 PM  Economics Government Costs


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Comments
averros said at December 11, 2008 12:53 AM:

Note to Arnold: reduce the freaking headcount and start selling the state property.

kurt9 said at December 11, 2008 8:36 AM:

I recently saw a program about the 70's on the History channel. It was mostly about stagflation and disco music. However, the sunbelt (SoCal, Arizona, Texas, etc.) was actually a golden land of opportunity during the 70's, especially Arizona and Texas. It was the place to go if you lost your job in the mid west or east coast. Now it appears to have decayed and become stagnant along with the rest of the U.S.

zylonet said at December 11, 2008 10:32 AM:

Geez, the budget problem presents a bit of a conundrum. Admit the truth about illegal aliens or make everyone suffer. Undoubtedly, the first will never happen, so everyone will suffer. The morality of liberalism: make another person suffer so that you can avoid admitting that which you know to be true.

Ned said at December 11, 2008 11:40 AM:

A Tale of Two States (Texas and California):

California State Budget - 1984 - $31 billion
2007 - $131 billion
Percent Increase (inflation-adjusted) - 225%
California State Expenditures per Capita - 1984 - $1200
2007 - $3468
Percentage Increase (inflation - adjusted) - 92%

Texas State Budget - 1984 - $9.3 billion
2007 - $35 billion
Percent Increase (inflation-adjusted) - 178%
Texas State Expenditures per capita - 1984 - $582
2007 - $1524
Percentage Increase (inflation-adjusted) - 97%

What conclusions might an observer draw from these interesting data? First, California spends too much, but that's no secret. Second, per capita state spending has actually increased slightly faster in Texas than in California. How can that be? It appears that California, in spite of increasing its overall state budget a lot more than Texas (225% vs. 178%), has done a poorer job of increasing its per capita spending, which still remains a lot higher in California than in Texas. Now both states have lots of illegal immigrants. I suspect, but can't prove, that the percentage is higher in California, but even if the percentages were the same, the higher California state per capita expenditures guarantee an economic crash.

Also, it should be noted that California is a very high tax state that has been suffering serious losses of businesses and native-born population, while Texas is a low tax state (no state personal or corporate income tax) that has been something of an economic magnet. Indeed, one of the points that I encountered in the Texas state budget documents I reviewed for this little piece of enlightenment is that almost all of the increase in state revenue since 1994 has been due to expansion of the base, i.e., not due to tax increases.

So it seems that California is headed for the wall. But, when the politicians there start moaning and groaning about budget cuts, note that California could cut its state budget by half and still spend more per capita than Texas. Why should citizens of states that have struggled to control their spending see their (federal) tax dollars go to subsidize and encourage this sort of profligacy?



Anonymous said at December 11, 2008 2:28 PM:

The California statehouse is run by a collection of minorities such as Latinos, Blacks, Jews, Gays, women, etc. This reflects much of the state. Each of the reps come from typically, a cloistered Bantustan environment. There is no majority core population left in the state (i.e., Anglo whites) to provide a sense of "what's right". It's more like a bunch of competing mafias. On an economic level, they believe they can live off the larger society and are entitled to do so (i.e., "they owe us"). On a moral level, because they are all minorities, they don't care what damage they inflict on the society as a whole. I just don't see anything good coming out of this. Basically, it's terminal.

Toadal said at December 11, 2008 9:14 PM:

The Sad Legacy of Senator Dianne Feinstein

Senator Dianne Feinstein's legacy is the lowering of California's quality of life. Her quasi-religious belief that all groups have equal powers of ability, regardless of geographical evolution, has lead to policies resulting in a majority of California resident children being Mestizos and Amerindians of Mexican and Latin American origin. International PISA Spanish reading scores for Mexico indicate over 50% of Mexican 15-year old youth today are functionally illiterate and uncompetitive in the Mexican economy. Only 13% of Mexican adults have received a high school diploma versus 87% of American adults.

See http://www.worldfund.org/index.php?q=Education-Gap.html
link for Latin American functional illiteracy and graduation rates.

US Department of Education NAEP figures indicate 50% of US Hispanic fourth graders score below basic in mathematics.

Link to US Department of Education NAEP Report for Mathematics:
http://nationsreportcard.gov/reading_math_2005/s0021.asp?subtab_id=Tab_6&tab_id=tab2&printver=#chart

US Department of Education NAEP figures indicate over 90% of US Hispanic eight graders score below proficient in science.

Link to US Department of Education NAEP Report for Science:
http://nationsreportcard.gov/science_2005/s0106.asp?subtab_id=Tab_6&tab_id=tab2#chart

Michael A. McDaniel, Ph.D., Professor of Human Resources and Organizational Behavior used math and reading scores collected by the National Center for Educational Statistics (NCES) to estimate state IQ. A sample of his results are as follows:

Rank #1 Massachusetts IQ 104.3
Rank #4 North Dakota IQ 103.8
Rank #39 South Carolina IQ 95.7
Rank #48 California IQ 95.5
Rank #50 Mississippi IQ 94.2

In summary, the quality of life change Dianne Feinstein has brought about is to marginally improve the life of Latin American Mestizos and Amerindians through Californias working sewers, roads, communications, health care, and civil order while decreasing the existing citizenry's life experience through decreasing the quality of physical infrastructure (working sewers, roads, communications, health care, etc.) and increasing crime and taxation.

James Bowery said at December 11, 2008 10:34 PM:

The problem with California is all those white racists whose politics of exclusion have left a legacy of minority hopelessness and despair which is now playing out as minorities become the majority. Whites did it... Whites did it... Whites did it... keep repeating and BELIEVE.

PS: Don't forget that the more white women minority men impregnate before white men can lock them away barefoot and pregnant, the less of those racists will be around in the next generation to further oppress the world.

rich mckone said at December 12, 2008 9:40 AM:

Contracting with counties to provide parole supervision, with local court handling technical parole violations, saves about $500 million annually. Increasing the percentage of prison contract beds from the current 4% to about 9% (like Texas)eliminates the actual prison overcrowding reported by the Legislative Analysist and avoids spending any of the $6.5 in prison construction bonds. It is not complicated except for the influence of the prison employee unions.

kurt9 said at December 12, 2008 10:30 AM:

I think that much of the CA state bonds have been bought by CALPERS and other local government employee retirement funds. When CA defaults on these bonds (which they will sooner or later) it will be CALPERS and other investors that take it in the shorts. Of course, they will go crying to the Federal government for a "bailout" which they may or may not get.

scottynx said at December 13, 2008 9:14 AM:

"I think that much of the CA state bonds have been bought by CALPERS and other local government employee retirement funds."

Maybe in the past that was excusable but is CALPERS really currently satisfying their fiduciary duty to the retirees by continuing that? The fund managers are legally beholden to the retirees (by US law), not to CA politicians and bureaucrats who would likely desire CALPERS to help them keep up a charade that CA is fine.

I suppose that if the bond interest rates are high enough than it is an excusable risk for a *certain portion* of investments.

Also, it is prudent for retirees to put as little money as possible in their own companies stock/bonds, since they are already heavily exposed to their company fortunes through their employment there. Shouldn't that sound investment principle apply to state and municipal workers as well? But I'm sure that that stupidly and deliberately happens (by politician hands) in municipalities all across the US and world.

Randall Parker said at December 13, 2008 11:07 AM:

Ned,

Thanks for those useful numbers. California's government obviously costs too much. But it takes a very severe crisis to do any sort of cuts.

rich mckone,

That we could save a lot of money by contracting out prisons to private companies and counties is not too surprising. But the numbers are still stunning. Some of those higher costs from state prisons are due to a truly heinous deal that Gray Davis made with the state prison union. He got campaign funds and we got majorly screwed.

scottynx,

I would be surprised if CALPERS or CALSTERS ivested a lot in muni bonds just because muni bonds earn lower interest. Their tax free income streams provide no tax advantage to pension funds that do not pay taxes in the first place.

BTW, California and Louisiana are tied for the lowest credit rating. But California is probably going to get downgraded so it will stand alone as having the lowest credit rating of any state in the union.


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