2009 December 29 Tuesday
California Budget Crisis Heating Up Again

The LA Times ran a story last week about how California's budget deficit is opening back up again and the Governator wants to make more big cuts in spending.

Reporting from Sacramento - Facing a budget deficit of more than $20 billion, Gov. Arnold Schwarzenegger is expected to call for deep reductions in already suffering local mass transit programs, renew his push to expand oil drilling off the Santa Barbara coast and appeal to Washington for billions of dollars in federal help, according to state officials and lobbyists familiar with the plan.

If Washington does not provide roughly $8 billion in new aid for the state, the governor threatens to severely cut back -- if not eliminate -- CalWORKS, the state's main welfare program; the In-Home Health Care Services program for the disabled and elderly poor, and two tax breaks for large corporations recently approved by the Legislature, the officials said.

The state is in a seemingly permanent financial crisis. The deficit is 20% of the general fund. Click thru and read all the details.

Since I expect Peak Oil to cause an extended period of economic contraction in the 2010s and 2020s I expect huge cuts in what governments do. As tax revenue declines the percentage of tax revenue spent on debt service will rise and spending will get cut more than tax revenue declines.

You might expect governments to raise taxes under conditions of extended declining revenue. But the voters will feel poor as their living standards decline and they won't want to give up a larger percentage of declining incomes to government.

Share |      By Randall Parker at 2009 December 29 09:51 PM  Economics California


Comments
Peter North's stunt double (but definitely not gay). said at December 30, 2009 2:45 AM:

Couldn't realy give a 'grannie's' about the state of California, but I do know it maks some jolly good pornography that is mostly internet streamed these days, and this apperas to be California's major industry these days.Increased pauperization = more porn.
California you can go to Hell in a handbasket, but don't take away my BangBros feed!

Black Death said at December 30, 2009 5:26 AM:

If you like numbers, here are some good ones:

California population - 1992 - 30.5 million
1999 - 33.4 million
2009 - 37.0 million

California per capita state spending - 1992 - $5247
2009 - $12665

Some major growth areas in state spending - pensions - 1999 - $11 billion
2009 - $31 billion
health care - 1999 - $31 billion
2009 - $75 billion
education - 1999 - $58 billion
2009 - $117 billion

So, since 1992, per capita state spending has more than doubled. Since 1999, population has grown just under 10%, but spending in some key areas has more than doubled. Even this is a bit misleading. For many years, California has been losing its native-born American population to other states, usually ones with much lower taxes. Many of these folks are affluent and are tired of being taxed to death by the all-consuming state government. The population growth has come largely from immigration, much of it illegal, much of it Hispanic. These immigrants are often poor and don't pay much in taxes but are big users of government services.

I don't live in California, but I have a lot of relatives there and visit often. My relatives all know thing is going over the cliff - they're all planning to leave when they retire if they can sell their houses.

Bob Badour said at December 30, 2009 6:18 AM:
The population growth has come largely from immigration, much of it illegal, much of it Hispanic. These immigrants are often poor and don't pay much in taxes but are big users of government services.

When the big cuts come, I guess many of the illegals will scatter. The rot will spread.

Randall Parker said at December 30, 2009 8:57 AM:

Black Death,

The inflation calculators do not yet translate into 2009 dollars. But:

What cost $5247 in 1992 would cost $7955.46 in 2008.

A 63% increase once adjusted for inflation.

I gotta leave California eventually. I accept that. The question remains: Where to go?

Black Death said at December 30, 2009 9:11 AM:

The numbers I posted earlier are abstracted from california state budget reports and are actual dollars, unadjusted for inflation. here are the inflation adjustore:
1992-2009 - 52%
1999-2009 - 28%.

Regards,

Black Death

sestamibi said at December 30, 2009 9:27 AM:

Randall--

$7955.48 vs. $5247 is a 51.6% increase, not 63%.

Still a hefty jump in real terms.

Randall Parker said at December 30, 2009 12:58 PM:

sestamibi,

I took the $5247 in 1992 dollars and converted it to $7955.48 in 2008 dollars. Since we've had little inflation in the last year I tnen divided the 2009 per capita state spending of $12665 by the $7955.48 it would have been if per capita spending rose only as fast as inflation. That gives me 59% which isn't your number or my original number.

I think I did it right this time. So I think Cal state per capita spending rose 59% per capita over about 17 years.

Black Death,

I am doubting your numbers. How can the state government spend $12665 per capita? Its budget is too small for that by about a factor of 4. It does not spend $486 billion (assuming 37 million people) per year. I think maybe your number might be for federal and state spending. Where'd you get it?

Mercer said at December 30, 2009 1:28 PM:

"Couldn't realy give a 'grannie's' about the state of California, "

What is happening now in California is a preview for many other states and the federal budget. Voters want big government services but don't want to pay for them.

The LA Times article didn't say anything about school spending. I would increase class sizes and reduce the number of high school classes needed to graduate to cut spending. Has anyone proposed this?

Leave Now said at December 30, 2009 8:23 PM:

My relatives all know thing is going over the cliff - they're all planning to leave when they retire if they can sell their houses.


Why wait?

Black Death said at December 31, 2009 5:12 AM:

Randall -

Here you go:

http://www.usgovernmentspending.com/California_state_spending.html

The numbers include spending by both state and local (but not federal) governments. Sorry if I didn't make that clear in the original post.


Leave Now -

They haven't left yet because they have good jobs there and probably couldn't sell their houses. They hope to leave when they retire.

Happy New Year!

Rob said at December 31, 2009 8:17 AM:

About your peak oil comment:

How much more expensive is nuclear energy, because we have a 1 million year supply of the fuel for that.

We also have 400 or 500 years supply of oil shale and coal for our own use.

Randall Parker said at December 31, 2009 3:36 PM:

Black Death,

Wow. I had no idea local spending in California is so large. At $298.9 billion local government spending is almost twice state spending.

If a Democrat replaces Arnie as governor taxes are going to go up up up.

Rob,

Nuclear energy costs more than coal electric. But it is maybe 2-3 cents per kwh more. Oil shale: I used to be an optimist on that and wrote FuturePundit posts about Shell's own optimistic pronouncements. But now I doubt it'll ever amount to much. Too much energy in to heat up the buried rock to get the kerogen out.

no i don't said at January 1, 2010 12:34 PM:

"These immigrants are often poor and don't pay much in taxes but are big users of government services.
When the big cuts come, I guess many of the illegals will scatter. The rot will spread."

BOB BADOUR,

What the heck are you talking about "immigrants don't pay taxes"???

Even illegal aliens pay taxes.

What period in history did you escape from with that rhetoric? Germany late 30s??

no i don't said at January 1, 2010 12:40 PM:

So true Bob Badour, so true... and then this immigrants o illegal aliens find no work and go back to Mexico because of high unemployment in a now broke California... Perhaps you think that California is broke because of the immigrants...(?!?) Or perhaps you think California is the olnly broke state in the U.S....(?) Or perhaps other Northern states are broke because they have no immigrants...

Meanwhile the Mexican government continues to welcome the sharp increase of illegal Americans in Mexico because it feels they provide a service to the economy. You figure it out, cause that's beyond me.


Bob Badour said at January 1, 2010 1:15 PM:
BOB BADOUR,

What the heck are you talking about "immigrants don't pay taxes"???

You are asking about something in a block quote. I suggest you ask Black Death because I was quoting him.

That said: Illegal aliens earn very little money as a group, which means they pay very little taxes as a group. Perhaps when you quote what others write, you could include all of the important bits instead of constructing a straw man by leaving out key parts. A gulfing chasm exists between "don't pay" and "don't pay much".

Bob Badour said at January 1, 2010 1:18 PM:
cause that's beyond me.

Well, you got that much right.

no i don't said at January 1, 2010 2:15 PM:

Well Bobby, perhaps you can explain how illegal aliens earn very little noney as a group. That to me seems very subjective. Be specific will ya, since nothing is beyond you and you are so clear spoken. tell us what is "little", what is "much" and compared to what. Otherwise you are not really saying anything, Are you?

"A few, little, many, much" SUBJECTIVE.

no i don't said at January 1, 2010 2:19 PM:

...otherwise it's just blaming the first minority group that comes to mind for the Califormia mess. Doing that is as comfortable as it is stupid as it shows light thinking.

Be specific

PBNJ said at January 2, 2010 7:29 PM:

Two points:

1. Illegal aliens do pay taxes - sales tax on non-underground transactions.

2. After the real estate market tanks even more in the coming few years, the state will have even less money to throw around than they do today.

Rob said at January 5, 2010 5:51 AM:

So, peak oil becomes a non-event. We have a 1 million year supply of thorium, which is the new nuclear fuel. It produces radioactive waste that is dangerous for only a few hundred years as opposed to a few hundred thousand years, and the new-design reactors cannot "melt down".

Or, we could just start using our coal, which would last us about 250 years.

Randall Parker said at January 5, 2010 6:32 PM:

Rob,

We have lots of ways to generate electricity. We do not face an electricity shortage. We face rising prices for liquid hydrocarbons. I'm all for the rapid development of liquid fluoride thorium reactions (LFTR). But our problem is with transportation energy. 95+% of our transportation energy is from oil. The alternatives cost more.


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