California – What Has Become of You?
January 20, 2009 · Posted in General Economics
You know a state is insolvent when …
…the Governor expects a state budget deficit of $41.6 billion:
California, like the rest of the nation is in the midst of a severe economic downturn.
The combined effect of the state’s continuing structural budget deficit and the
loss of revenues resulting from the economic downturn results in a budget gap of
$41.6 billion, just under half of the revenues projected for 2009‑10. (page 1)
…the Governor announces in his budget that state employees and vendors will get paid in State IOU’s:
The budget projects that even if the Legislature enacts all of the special session solutions
by February 1, 2009, the state will be unable to pay all of its bills beginning in March.
This will require deferral of some payments. Absent legislative action or if the solutions
adopted by the Legislature fall short of the level proposed by the Governor, it may be
necessary for the state to make some payments with registered warrants, or IOUs. (page 4)
…the Governor thinks that postponing the inevitable by two more years is a viable step toward budget consolidation:
However, it will not be possible for the state to continue managing its cash flow into
the budget year in the absence of a substantial infusion of cash. Therefore, the budget
proposes selling Reimbursement Warrants (commonly known as RAWs) in July of 2009.
While RANs must be repaid within the fiscal year in which they are sold, RAWs can be
repaid in the subsequent fiscal year. Thus the budget proposes repaying the RAWs no
later than June 30 of 2011. (page 5)
…the Governor proposes to cripple the state’s economy further by increasing the already overwhelming tax and fee burden:
- Temporary 1.5‑cent increase in the Sales and Use Tax rate.
- Broaden the Sales and Use Tax base to include certain services.
- Increase the Beverage excise tax by a per gallon surtax equivalent to a “nickel‑per‑drink.”
- Adopt a 9.9‑percent Oil Severance Tax.
- Reduce the personal income tax dependent exemption credit to equal the personal exemption credit.
- Increase the vehicle registration fees. (See “Special Fund Revenue” section below) Shift Tribal Revenues from Transportation to General Fund Transfer and borrow balances from special funds (page 58)
(It shall be duly noted that in all state measures to raise revenue, the the word “temporary” needs to be replaced by the word “permanent”)
…the Governor for some reason believes that sales tax revenue , mostly from vehicle (!!!) sales, will progressively increase over the next 2 years:
Sales and Use Tax Revenue(In billions)
2008‑09 (Forecast) $27.778
2009‑10 (Forecast) $33.793 (page 66)
…the governor, in the face of collapsing real estate prices, banks on an increasing property tax base:
Although the property tax is generally considered a local revenue source, the amount of
property tax generated each year has a substantial impact on the state budget because
local property tax revenues allocated to K‑14 schools offset General Fund expenditures.
Assessed value growth is estimated based on twice‑yearly surveys of county assessors
and evaluation of real estate trends. Assessed value is estimated to grow 4.4 percent in
2008‑09 and 0.3 percent in 2009‑10.
California will not pay state tax refunds for individuals and business that overpaid 2008 taxes, in order to conserve dwindling cash for priority payments including school spending and debt repayment required by state law, the state’s controller office said on Friday.
Other state checks to be postponed for 30 days include payments for vendors who provide services and products to the state government and state checks to a million aged, blind and disabled Californians to cover rent and utilities bills, State Controller John Chiang’s office said in a statement.
… it has been making state employees guaranteed millionaires:
The California state government provides a “defined benefit” pension plan to each of its employees. Such “defined benefit” pension plans are far more generous than any 401(k) or defined contribution pension plan available from any other employer in the state! In fact, the plan is so generous that it makes the average state employee a millionaire after only 22 years of work!
California has to wake up to reality. Whether we like it or not, the state needs to stop paying unionized workers outrageous wages. Instead of reducing expenses for some departments and programs, it needs to dismantle and abolish entire departments and programs. It needs to stop funding unsustainable pension plans. In return it needs to drastically cut the overwhelming taxes and fees that are stifling its economy.
If it doesn’t do it now, then it will have to do it later, by declaring bankruptcy, which will completely wipe out all programs and departmens that can then no longer be funded anyway.