California Finally Runs Out of Cash
By Andrew Jeffery Jun 30, 2009 2:40 pm
Tries to convince creditors that IOUs are just as good as money.
For months, the most populous US state has been in the throes of a historic budget crisis, as lawmakers have repeatedly failed to agree on how to resolve a $24 billion deficit.
What was once the country's richest state is preparing to issue IOUs to a host of creditors, according to the Financial Times. Among the dubious recipients of these IOUs: Contractors, information-technology companies, and food-service groups that cater to prisons. Funding for education and interest payments on its bonds are guaranteed by state law.
Governor Arnold Schwarzenegger is taking a hard line with legislators, accusing them of offering up a piecemeal solution to the state's woes: "I will veto any majority tax increase bill that punishes taxpayers for Sacramento's failure to live within its means. It's time for the legislature to send me a budget that solves our entire deficit without raising taxes," the Governator said yesterday.
Lawmakers appear blindsided. It's almost like the state went broke all of a sudden and they haven't had time to properly prepare a solution. Not true: The state has been in and out of financial crisis for more than a decade.
After Schwarzenegger vetoed an $18 billion budget package in January, calling it "deeply flawed," members of the California legislature pulled a literal all-nighter to try and agree on spending cuts, tax hikes, and other measures to get the state back on sound financial footing. The proposed agreement -- hailed as an eleventh-hour solution to what could have become a fiscal nightmare -- was put to a state-wide referendum in May.Voters rejected the proposal, soundly. Of the 5 measures on the ballot, the only one that passed were new rules that cut the pay for elected officials. And for good reason.
California politicians are a woeful bunch. Despite being home to some of the most profitable and innovative companies in the world, the state is perennially short of cash. Oracle (ORCL), Google (GOOG), and Genentech (DNA) all hail from the San Francisco Bay Area, while San Diego remains a mecca for biotechnology research and is home to mobile-communications giant Qualcomm (QCOM).
The state has vast natural-resource reserves, has a booming agricultural industry, is a popular tourist destination, and has some of the most heavily trafficked ports in the world. Good weather and generally high quality of life has made California the destination for dream-seekers for more than 150 years.
Yet, despite everything it has going for it, California's political process is a complete disaster. In an attempt to allow voters to play a more direct role in governance, the state's referendum system allows citizens to collect signatures and get measures onto statewide ballots. Enough votes on election day and any Californian can see his or her whimsical dream become law. This has created a patchwork of legislation, rules, and special interests that have hogtied what would be the seventh-largest economy, were it to be a sovereign nation.
As the calendar turns tonight on its new fiscal year, California could be the first state -- like its bailout-begging brethren on Wall Street -- to go hat in hand to Washington pleading for a rescue.
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Reply
2009-06-30 14:58:15
Carry on regardless
Yes that is what the market is trying to do... the usual end of day rally... can't have the market react to such things... like people losing their jobs and worried about the future or California going broke...
Hey no... that is the real world not Wall Street banksters domain where you can only win and never lose (as long as you are a bankster that is)
Hey no... that is the real world not Wall Street banksters domain where you can only win and never lose (as long as you are a bankster that is)
2009-06-30 15:15:51
CA
hence the term, and political venue, that bankrupted the state:
liberalism is a mental disease
(and failed social remedy)
liberalism is a mental disease
(and failed social remedy)
2009-06-30 15:29:08
What a movie...
The Terminator vs The Stimulator Judgement day II...you just know Cali-
fornia...will be back.
fornia...will be back.
2009-06-30 15:47:36
Why I left
News like this is just one reason I and many others have escaped from California to the designated "Free State", New Hampshire, with no income tax, no sales tax, no mandatory adult seat-belt law... it's almost like living in a SANE place again!
http://freestateproject.org
http://freestateproject.org
2009-06-30 16:05:21
One word
Only one word for the bankrupted state.
MEXICANS!!
You let it happen! Live with it.
MEXICANS!!
You let it happen! Live with it.
2009-06-30 16:05:56
Well, like everything "california" it's all an exageration.
The cali government is inept because it's irrelavent. Unless you're living off the government - state or local "worker", contractor leach company or employee (me), land-developer (or similar scum), or tranfer payment recipient - the state is MOSTLY invisible to the average person (unless you get stopped by CHP - officer I have a constitutional RIGHT to drive 100 mph; the founding fathers would be OUTRAGED!!!). When the state DOES start issueing IOU's then more people will be affected (those living off those living off the state) but until then, who cares.
The weather's the same regardless.
The weather's the same regardless.
2009-06-30 16:07:31
One word
without the mexican, the entire country would starve. Can you immagine the pale-once picking strawberrys.
Like, dude, my back hurts dude. Oh, like dude, we're the greatest dude. Like totally.
Like, dude, my back hurts dude. Oh, like dude, we're the greatest dude. Like totally.
2009-06-30 16:53:11
One word
Agree with John below -- blaming immigrants for the state's problems would imply they have some say over the terrible governance in our state. Not so.
Its this attitude which causes immigration problems, not the immigrants themselves.
Its this attitude which causes immigration problems, not the immigrants themselves.
2009-06-30 16:58:15
Well, like everything "california" it's all an exageration.
and once in a while you get the - shake, rattle and roll syndrome too!
2009-06-30 16:59:51
What a movie...
hahahahahahahahaha
while they still exist, they have now become IRRELEVENT
oh well, this to shall pass
and would you like vaseline with that there problem you have???
while they still exist, they have now become IRRELEVENT
oh well, this to shall pass
and would you like vaseline with that there problem you have???
2009-06-30 17:51:34
What a movie...
but it's not really a problem. The top Cali tax rate is 11%, I vaguely recall that I payed about 7% Cali income tax last April. Then there's a 8% (or so) sales tax, which is only important if you buy lots of stuff (I don't, and there's no tax on food). But, all this is factored into the pay scales and contractor rip-off rates. So, in the end, I'm paying about 10k to live in good weather.
If you don't care about good weather or the "california life style" (not sure what this is, exactly, but Cali people are different than - say - llinois or Flordia, two places I've lived and don't miss) then there's no point in paying the extra tax rate. But, I'm getting extorted by the federal government more than california, so I don't even think about taxes that much.
The US governments (local, state, feds) are just mafia; but the peasants can't admit to themselves that "their" country has degraded that much AND - more importantly - that their own preferred party ISN'T a mafia. So, I pay my protection money, and get nothing, just as I'd expect of a mafia.
If you don't care about good weather or the "california life style" (not sure what this is, exactly, but Cali people are different than - say - llinois or Flordia, two places I've lived and don't miss) then there's no point in paying the extra tax rate. But, I'm getting extorted by the federal government more than california, so I don't even think about taxes that much.
The US governments (local, state, feds) are just mafia; but the peasants can't admit to themselves that "their" country has degraded that much AND - more importantly - that their own preferred party ISN'T a mafia. So, I pay my protection money, and get nothing, just as I'd expect of a mafia.
2009-06-30 20:58:29
Small observations
California's Mexicans, mostly, pay SSI taxes to the Feds, but they get services paid, largely, by the state.
California has been thoroughly gerrymandered to the benefit of Democrats. The trouble with gerrymandering of this sort is that there are few competitive districts. So legislative battles are between very left and very right folks. I believe I read that Texas has been gerrymandered toward the Republican side. In any event the middle gets lost in such a system.
California's three strtikes initiative means we have a very large prison population. The 'War on Drugs' doesn't help much either.
Finally, Proposition 13, limiting real estate taxes to 1% has had some perverse effects. The worst is that local governments don't control their revenues much anymore. Prior to its passage there were taxpayer associations, and such, which monitored expenditures and hence taxes. There were actually Republicans on the Berkeley City Council, for example. These days local politicians are mostly right and left wing nutballs who often go on to higher office. Since local governments don't set property tax rates, property owners don't pay much attention to who is running.
It will be interesting to see how this all comes out. Nutball legislators funded by public employee unions. Follow the money.
California has been thoroughly gerrymandered to the benefit of Democrats. The trouble with gerrymandering of this sort is that there are few competitive districts. So legislative battles are between very left and very right folks. I believe I read that Texas has been gerrymandered toward the Republican side. In any event the middle gets lost in such a system.
California's three strtikes initiative means we have a very large prison population. The 'War on Drugs' doesn't help much either.
Finally, Proposition 13, limiting real estate taxes to 1% has had some perverse effects. The worst is that local governments don't control their revenues much anymore. Prior to its passage there were taxpayer associations, and such, which monitored expenditures and hence taxes. There were actually Republicans on the Berkeley City Council, for example. These days local politicians are mostly right and left wing nutballs who often go on to higher office. Since local governments don't set property tax rates, property owners don't pay much attention to who is running.
It will be interesting to see how this all comes out. Nutball legislators funded by public employee unions. Follow the money.
2009-07-01 09:52:01
What a movie...
And don't forget that CA does not have a capital gains tax... everything is considered earned income. When I sold my house there, the gains were all taxed at the highest personal income tax rate (in 2005, it was 9.5%). It was worth the money just to be free from there!
One can only hope that CA doesn't now get my US tax money to pay their bills!
One can only hope that CA doesn't now get my US tax money to pay their bills!
2009-07-01 10:58:02
Small observations
Of all the comments, some of which are purely emotional and illogical, Kurt is right on point. As with many states, gerrymandering has polarized the constituents and squeezed out the middle. The pandering of the last eight years made it even worse with the endless catering to the self-defined "values" voters. Appeal to raw emotion, run to your respective ideological corners and cause the entire system to freeze. Sorry, its not the "Mexicans" or "liberals" who screwed it up. It is the hard core right wing vs. their hard core left wing counterparts.
As we move forward to life with lowered expectations, a lower standard of living, paying down our debts and living within our means, the emotions will remain raw as we struggle to find the middle ground. It will take a few years for Californians to realize that their initiative system will continue to stymie their economy if they don't change it.
As we move forward to life with lowered expectations, a lower standard of living, paying down our debts and living within our means, the emotions will remain raw as we struggle to find the middle ground. It will take a few years for Californians to realize that their initiative system will continue to stymie their economy if they don't change it.
2009-07-06 13:05:20
"...the state's referendum system allows citizens to collect signatures and get measures onto statewide ballots...".
Aren't these the same citizens who decided that they didn't like to pay property taxes, so they barely do? And the same ones who recalled a governor when Enron, in one of their few successful ventures, was wreaking havoc on the California energy supply? And who then put the present guy in the governor's mansion? Am I missing something, or are they finding out that there really is no free lunch?
Hasta la vista, baby...
Aren't these the same citizens who decided that they didn't like to pay property taxes, so they barely do? And the same ones who recalled a governor when Enron, in one of their few successful ventures, was wreaking havoc on the California energy supply? And who then put the present guy in the governor's mansion? Am I missing something, or are they finding out that there really is no free lunch?
Hasta la vista, baby...
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