2009 March 18 Wednesday
California Budget Deficit Grows Again

California 's chronic dysfunction shows America our future. We have high income and sales taxes. But the Leviathan just can't get enough. Constitutional provisions make it easier to increase spending than to increase taxes. Combined with liberal voters and a massive and growing immigrant permanent lower class the result is continued decay of the state government's fiscal position.

The bipartisan budget compromise passed last month included $12.5 billion in temporary tax increases, $15 billion in cuts, $8.5 billion in federal stimulus aid, $5 billion in borrowing and some funding shifts to close an unprecedented $42 billion deficit over the next 16 months.

Yesterday, Taylor said the budget has already developed an $8 billion hole because of a $6 billion projected revenue shortfall and $2 billion set aside in reserves. But he said the state could receive up to $3.5 billion more in federal aid for education, which could pare the shortfall to $3 billion or less.

While a deficit of that size would not be terribly daunting to lawmakers who routinely faced similar spreads in the past, the analyst forecast rapidly growing deficits starting again in the 2010-11 fiscal year.

“The reason for that is fairly simple. We have one-time solutions that drop out over time,” Taylor explained.

The projected deficit in 2010-11 is $12.6 billion, growing to $26 billion three years later. If voters reject Proposition 1A, the temporary tax increases approved last month would expire sooner, adding billions of dollars to the projected shortfalls.

How high will taxes go?

Former eBay CEO Meg Whitman is running for Governor of California as a Republican and she's campaigning against ballot measures coming up in May that Schwarzenegger wants to pass to close the $42 billion budget hole that preceded the new $8 billion budget hole. If these propositions do not pass the working assumption will rapidly change toward a much bigger deficit.

Proposition 1A would create a state spending limit and rainy day reserve fund while extending some of the tax increases that lawmakers and Schwarzenegger approved in the budget-balancing plan.

Proposition 1B would protect school funding when state revenue rebounds after a slump, and Proposition 1C would allow the state to borrow against future lottery earnings.

Propositions 1D and 1E would allow use of early childhood development and mental health funding for other children's programs. Proposition 1F would bar pay increases for state elected officials in years that the state runs a deficit.

Whitman said Proposition 1A was a "sustained tax increase masquerading as reform." She called Proposition 1B Proposition 1A's "working partner."

California governments are getting a large sum of money from Obama and the nation's taxpayers as part of Obama's stimulus spending. But most of that money can't be applied toward reducing the state deficit since it has to get spent on particular purposes.

To be clear, the federal spending package will actually deliver much more than $10 billion to California — some estimates peg the figure at as much as $50 billion in aid to local governments, business tax credits and other programs. But much of that money is earmarked for specific purposes, like unemployment and health benefits, and won't help plug the state's deficit.

Once the fiscal stimulus money is gone spent how are all the programs it funded going to get money to operate? These programs are creating more clients who want to keep the money and benefits flowing to them.

Share |      By Randall Parker at 2009 March 18 11:57 PM  Economics Government Costs


Comments
James Bowery said at March 19, 2009 6:39 AM:

Well, it looks like my idea to provide a "soft landing" (tax non-homestead net assets at the risk free interest rate and replace government services with a citizen's dividend) won't get adopted -- at least not in time to avoid a hard landing.

I came up with that idea in 1992 after spending the prior 4 years getting legislation signed into law by Bush Sr. It was obvious to me then that rent-seeking in both public (government services) and private (concentrated wealth) was going to destroy society one way or another through positive feedback loops.

The anarchists will have their day.

Jasmine said at March 19, 2009 9:44 AM:

Positive feedback growth of government leads eventually to collapse. It happened in California, it is happening in Washington DC. The perfect combination of US President and US Congress has been achieved so that now the US government can balloon and bubble up as never before. This is not just the New Deal. It's the New Deal plus all other peacetime government expansions plus all wartime mobilizations (but without the war). Most people look at corrupt and failing government, and ask "why?" Obama looks at corrupt and incompetent government and asks, "why not?"

coldequation said at March 19, 2009 6:21 PM:

Whitman: "Before asking taxpayers for more money, government should cut bureaucracy, cut spending further, improve efficiency and provide better services for less."

Bullshit. She's going to go in there and get hostile bureaucrats to improve efficiency? Good luck with that. They'll cut the muscle before they cut the fat and there's not much a governor can do about that. The harsh truth is that either taxes need to be raised to pay for France^HCalifornia's luxurious spending or they need to become a low-service state like all of the other low tax states.

California's bond rating is already in the toilet so it won't be too long until they are forced to make the decision about which way to go (of course, federal bailouts could delay the day of reckoning for a long time). I expect them to raise their taxes even higher, which is why I wouldn't want to live there.

Randall Parker said at March 19, 2009 7:10 PM:

coldequation,

I think the state really should become a lower service state. Shut down state parks or pay for admissions. Any other service that is truly optional should either get cut out or become for-pay.

We really need to break the government employee unions. Cut pay. Cut benefits - especially retirement benefits. Cut the number of employees. Those of us in the private sector deal with staffing cuts. The public employees can too.

Trent Telenko said at March 20, 2009 10:47 AM:

The hext big hit to the California economy will be when agriculture in the central valley drys out and the farmers decamp to another state. Current Sacramento water policies will cost California 300,000 acres of farm land and up to 80,000 jobs. These water policy changes are driven by the urban "Coastal progressives" who care more for salmon and smealt than people.

No Obama wants to bring California's environmental policies to the rest of the nation

http://www.forbes.com/2009/03/16/california-environmentalists-water-agriculture-opinions-columnists-scarcity_2.html

How Elite Environmentalists Impoverish Blue-Collar Americans

Joel Kotkin, 03.17.09, 12:01 AM ET

The great Central Valley of California has never been an easy place. Dry and almost uninhabitable by nature, the state's engineering marvels brought water down from the north and the high Sierra, turning semi-desert into some of the richest farmland in the world.

Yet today, amid drought conditions, large parcels of the valley--particularly on its west side--are returning to desert; and in the process, an entire economy based on large-scale, high-tech agriculture is being brought to its knees. You can see this reality in the increasingly impoverished rural towns scattered along this region, places like Mendota and Avenal, Coalinga and Lost Hills.

In some towns, unemployment is now running close to 40%. Overall, the water-related farming cutbacks could affect up to 300,000 acres and could cost up to 80,000 jobs.

However, the depression conditions in the great valley reflect more than a mere water shortage. They are the direct result of conscious actions by environmental activists to usher in a new era of scarcity

>SnipThe hext big hit to the California economy will be when agriculture in the central valley drys out and the farmers decamp to another state. Current Sacramento water policies will cost California 300,000 acres of farm land and up to 80,000 jobs. These water policy changes are driven by the urban "Coastal progressives" who care more for salmon and smealt than people.

No Obama wants to bring California's environmental policies to the rest of the nation

http://www.forbes.com/2009/03/16/california-environmentalists-water-agriculture-opinions-columnists-scarcity_2.html

How Elite Environmentalists Impoverish Blue-Collar Americans

Joel Kotkin, 03.17.09, 12:01 AM ET

The great Central Valley of California has never been an easy place. Dry and almost uninhabitable by nature, the state's engineering marvels brought water down from the north and the high Sierra, turning semi-desert into some of the richest farmland in the world.

Yet today, amid drought conditions, large parcels of the valley--particularly on its west side--are returning to desert; and in the process, an entire economy based on large-scale, high-tech agriculture is being brought to its knees. You can see this reality in the increasingly impoverished rural towns scattered along this region, places like Mendota and Avenal, Coalinga and Lost Hills.

In some towns, unemployment is now running close to 40%. Overall, the water-related farming cutbacks could affect up to 300,000 acres and could cost up to 80,000 jobs.

However, the depression conditions in the great valley reflect more than a mere water shortage. They are the direct result of conscious actions by environmental activists to usher in a new era of scarcity

>Snip

Trent Telenko said at March 20, 2009 12:38 PM:

Grrr...that should have read:


The hext big hit to the California economy will be when agriculture in the central valley drys out and the farmers decamp to another state. Current Sacramento water policies will cost California 300,000 acres of farm land and up to 80,000 jobs. These water policy changes are driven by the urban "Coastal progressives" who care more for salmon and smelt than people.

Now Obama wants to bring California's environmental policies to the rest of the nation.


http://www.forbes.com/2009/03/16/california-environmentalists-water-agriculture-opinions-columnists-scarcity_2.html

How Elite Environmentalists Impoverish Blue-Collar Americans

Joel Kotkin, 03.17.09, 12:01 AM ET

The great Central Valley of California has never been an easy place. Dry and almost uninhabitable by nature, the state's engineering marvels brought water down from the north and the high Sierra, turning semi-desert into some of the richest farmland in the world.

Yet today, amid drought conditions, large parcels of the valley--particularly on its west side--are returning to desert; and in the process, an entire economy based on large-scale, high-tech agriculture is being brought to its knees. You can see this reality in the increasingly impoverished rural towns scattered along this region, places like Mendota and Avenal, Coalinga and Lost Hills.

In some towns, unemployment is now running close to 40%. Overall, the water-related farming cutbacks could affect up to 300,000 acres and could cost up to 80,000 jobs.

However, the depression conditions in the great valley reflect more than a mere water shortage. They are the direct result of conscious actions by environmental activists to usher in a new era of scarcity

>>snip


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