Nowhere in the country is the insanity as crazy as The Bubble State of California: It's "The West Coast" Heavy Weight Bout of 2010. We easily have the biggest state budget deficit at $19 billion and no traction on a solution. In fact, the boys and girls at the State's capital couldn't be further and more ardentlyapart on how to cure the State's financial issues.
In the ongoing budget stalemate, Democrats refuse to accept devastating cuts while Republicans reject new taxes. Nobody is budging.
The longer this drags out, the more likely it is that Gov. Arnold Schwarzenegger and lawmakers will resort to a well-worn playbook of accounting shifts, borrowing and asset sales to close out the rest of the budget.
In the past, this has included paying state workers one day later and trying to sell the quasi-public state workers' compensation insurance fund.
Such one-time budget tricks delay political backlash but contribute to California's long-term financial instability. They avoid taxes, so Republicans are happy. They provide money to sustain programs, so Democrats are satisfied.
"There's consensus on gimmicks, because it's the least dangerous option - at least for the people in office," said Joe Mathews, a New America Foundation senior fellow and co-author of "California Crackup: How Reform Broke the Golden State and How We Can Fix It."
"The consequences are that programs aren't on a stable funding base, businesses are uncertain where the state is heading, and we push costs onto future generations."
To eliminate part of the $19 billion deficit, Democrats and Republicans are again considering one-time options. Sources close to budget negotiations told The Bee that Schwarzenegger has proposed borrowing $2 billion from the state's pension system to help balance the budget, by taking an advance on savings from long-term pension reductions.
State leaders also expect to sell 11 state office buildings for more than $1 billion in upfront cash, only to lease them back for decades. Democrats have proposed letting schools borrow $1.5 billion that the state would promise to repay in future years.
Without enough permanent tax increases or spending decreases, the state's budget imbalance will repeat itself. The nonpartisan Legislative Analyst's Office foresees annual deficits of roughly $20 billion through 2014-15.
State workers endured the latest tortuous turn in an off-again-on-again furlough saga that has left roughly 144,000 of them uncertain from week to week of their work schedules.
But the California Supreme Court's decision Wednesday to side with Gov. Arnold Schwarzenegger and allow furloughs to start again Friday should be the last twist - at least until next month.
California's top accountant said Wednesday that the state would have to issue IOUs in two to four weeks if Gov. Arnold Schwarzenegger and the state legislature don't agree to a budget by then.
State Controller John Chiang said without a new spending plan that closes a $19 billion shortfall, the state would run out of money by late October. "We will run out of money if everything remains the same," he said in an interview.
If California resorts to IOUs, it will be the latest humiliation for the cash-strapped state. Last year, California, facing a $26 billion budget shortfall, issued about 450,000 IOUs valued at a total of $2.6 billion.
State legislators have not yet sent the governor a spending plan for the fiscal year that began July 1.
Democratic legislators are in a stalemate with Mr. Schwarzenegger, a Republican, and GOP legislators. Democrats want a budget that includes tax increases, while Republicans want a plan that raises no taxes and relies more heavily on spending cuts.
Consensus is difficult to achieve because California is one of three states that require at least two-thirds of its legislators to pass a budget. Democrats hold a statehouse majority but fall just short of the two-thirds threshold.
This is a great example of why California is on the verge of financial implosion. The right choices and decisions won't be made because politicians in the State won't tackle the issues that have caused the massive budget deficits. In this light, the blame falls squarely on State Democrats.
The Bubble State is facing a spending (expense) problem. Politicians relied on one time bubble economy tax revenues during the bubble days to support massive pay increases and benefit enhancements for public union employees. And now that the bubble level tax revenue is gone, State Democrats won't get real about adjusting compensation and benefits because it's the unions that have put them in power.
We have politicians who favor a minority of the State's population at the cost of the majority simply because the unions have both money and a concentrated voting base that have for years supported State Democrats.
There are at least two State Democrats (among others) that have been key in blocking any real progress. State Assembly Speaker Perez and State Controller John Chiang.
In May 2010 Assembly Speaker Perez was my: Donkey of the Month
1) Absolutely beyond belief. Not only is this raise completely outrageous given the current budget circumstances, economy and pay scale of equivalent positions. It shows that Mr. Perez is a blatant hypocrite based on his Swearing In Speech.
2) At the heart of the proposal is the idea of raiding the state's bottle deposits for the next 20 years and then getting an $8.7-billion loan from Wall Street. The programs currently funded by bottle deposits would be reimbursed by a new tax on oil production. Under his plan, the speaker would cast aside almost all the budget cuts Schwarzenegger proposed earlier this month. The state would use the borrowed money from the bottle deposits to fund programs this year.
Assembly Speaker John Perez was also a July 2010 nominee in Donkey of the Month: Lindsey Lohan, President Obama, House Rep. Charlie Rangel, or Illinois Governor (Pat Quinn)
As California slogs through its fourth week without a budget, Assembly Speaker John A. Pérez has emerged as either the most loved or loathed of the four legislative leaders, depending on your perspective.
The Los Angeles Democrat has drawn the ire of Republicans, including Gov. Arnold Schwarzenegger, for adhering to a game plan that relies on more taxes and borrowing, and limited cuts to schools and social services.
State Controller (Democrat) John Chiang has been fighting Arnold Schwarzenegger's plan to reduce State worker pay (until a budget can be reached) to the minimum wage: It's "The West Coast" Heavy Weight Bout of 2010: Round 2
Schwarzenegger has said state law requires the reduced paychecks as California enters the third week of the fiscal year without a spending plan in place. State Controller John Chiang, who prints the paychecks, has said he cannot implement the order, blaming an outdated computer system.
Judge Patrick Marlette of Sacramento County Superior Court said Friday that while Chiang was breaking state law by failing to issue the smaller paychecks, he could not discount the antiquated computer argument as "frivolous" and denied the Schwarzenegger administration's request for an injunction.
In the state of California, State Controller is an elected position. So we have a Governor and Controller at odds with each other as it relates to running the state financially. Controller John Chiang is a Democrat, which puts him behind supporting the union agenda. He's been adamantly fighting Arnold's plan to reduce state worker pay to the minimum wage on the flimsy context of an antiquated computer system would not enable him to make those pay adjustment.
The Bubble State has a serious issue with its budget, which is driven by out of control expenses, which is driven by out of control public union pay and benefits. The math is that simple. And since the States majority party (Democrats) won't touch public union pay and benefits, it's the Democrats at fault in The Bubble State. Again it's just math that dictates fault and blame.
We shouldn't expect any solution in the near future because the Democrats are supported by public unions, which forces a block of a real solution. And until the majority of California citizens grow in anger and vote out Democrats, not much will change either.
Luckily, the Democrats do not have the 2/3 majority needed to shove a big tax increases onto California citizens while protecting the pay and benefits of union employees.
California Implosion: The reason why The Bubble State is on the verge of an implosion is because there's no solution that will pull the State out of the nose dive except for another bubble economy, and that's just not on the table.
Higher Taxes: This is why the Democrats are way off. Higher taxes would cause net income to decline which would reduce real estate home affordability and consumer spending. The two most important things to a healthy economy, thereby exacerbating the State budget difficulties further and causing more short falls in the future because both retail sales and real estate tax revenues would decline with lower consumer sales and real estate values. It's simple math John Perez and his union cronies just won't share with the rest of the world.
Gimmicks: One time Gimmicks like selling State assets and borrowing money at best only push off the day of dealing with everything into the future. They do nothing to cure the issues. Why CalPER would want to lend a State this broke money seems like a stupid idea on their part. Why the State would want to sell assets when that's clearly not the cause of the problem also seems short sighted and stupid.
Layoffs and/or Salary Cuts: If we did the functional and rationale choice of cutting back union employee pay, hard cap overtime, and roll back benefits, the state might be able to cure it's budget, but here too, this causes wage deflation which causes lower consumer spending while lowering home affordability for these employees, and thus we would again have reduced tax collection and have budget issues in the futures. This is the right thing to do but it too has a negative consequence. It's the only choice that eventually balances tax revenues and expenses in the long run.
Insanity: Instead of a sane budgetary cure, we are going to get worker furloughs and IOUs. Furloughs work just like a salary cut. If you're forced to not work 3 days a month without pay, that's equal to a 15% decrease to your pay. That's wage deflation and has a negative impact on consumer spending and real estate affordability. IOUs on the other hand is a failure to pay vendors working for the state in a form of cash. If you're a business owner and you get paid in IOUs you could be put right out of business. If IOUs persist for a long time, vendors working for the state won't have the cash to make payroll or buy supplies because IOUs don't convert to cash. The vendor and their employees may be negatively impacted, and again it impacts consumer spending and real estate affordability.
Without another bubble economy, there is NO SOLUTION that doesn't have a negative impact on the entire State's economy. Therefore, they should choose to solve the issue where the issue stands, which is an expense or payroll/benefit issue. It's the only long term solution that works.
Every problem we have in this country is one of simple math, and the solution is also one of simple math. Unfortunately, special interests and political agendas block the system from supporting the best interest of the majority. This is where the voting public needs to enter the game. Until the masses speak out and vote for sane actions, these issues will not resolve themselves in favor of the tax payer now or in the future.
On August 31, 2010: State budget vote scheduled for Tuesday
A vote on competing state budget proposals is scheduled for Tuesday in both the Assembly and state Senate, lawmakers in both houses said Friday.
Legislative leaders agreed to take up both the budget plan put forward by Democrats and the plan proposed by Gov. Arnold Schwarzenegger, which is supported by Republicans in the Legislature.
Democrats have called for tax increases and delays in corporate tax cuts as part of their budget proposal. Republicans remain opposed to tax increases, and have called the elimination of the state's welfare-to-work program and other social programs.
Tuesday is the last day of the legislative session and is the final day for lawmakers to pass bills of any kind, including the budget. Neither plan is expected to receive the two-thirds needed for passage Tuesday, but the vote will be a formal acknowledgement of what budget watchers have known for weeks -- that talks are at an impasse and a budget deal is not yet at hand.
Leaders briefed their members on the plans in closed-door meetings on Friday. After Tuesday's votes, Schwarzenegger is expected to ask lawmakers to come back in a special session to solve the budget problem.
"We intend to call them back to finish the job," said Schwarzenegger spokesman Aaron McLear.
Tuesday, August 31 the results: Budget plans fall short
UPDATE: The Assembly closed the roll. Final vote: GOP plan, 23 yes, 52 no. Democratic plan, 50 yes, 25 no.
As expected, both houses of the Legislature soundly rejected two competing state budget plans today, leaving California without a spending plan 62 days into the fiscal year.
All we have really learned is what we already know. State Democrats still disrespect the majority of Californians and there will be no solution for the State of California, and we will go on without a budget as the insanity continues. More Furloughs and IOUs on the way.
Hope all is well.