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Governor’s Actions Lead To Unnecessary and Premature Crisis

David M Greenwald.jpg by David M. Greenwald
Editor
California Progress Report

An Op-Ed by the San Jose Mercury news on Wednesday blasted Governor Arnold Schwarzenneger for needlessly pushing the state over the edge. Today, Controller John Chiang will begin handing out IOUs to state workers and to vendors of the state.

As Controller John Chiang said last week:

“We start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression. The State’s $2.8 billion cash shortage in July grows to $6.5 billion in September, and after that we see a double-digit freefall. Unfortunately, the State’s inability to balance its checkbook will now mean short-changing taxpayers, local governments and small businesses.”

That reality hit home on Tuesday night when the state legislature and Governor could not agree on a stopgap fix for the budget.
Writes the San Jose Mercury News:

“In rejecting a stopgap fix for the budget on Tuesday, the governor and GOP leaders have accelerated a budget meltdown that pushes the state deeper into debt. Its already huge deficit immediately will grow and its credit rating will fall farther. (How much lower can it go?) Animosity between Democrats and Republicans will deepen, and the potential budget solutions, already painful, will become even less acceptable. Happy Fiscal New Year, Californians. Put away your confetti and grab some tomatoes for your elected representatives. They have once again failed you.

At the center of the mess is Schwarzenegger. He can cast himself as a pragmatist, but he proved to be inflexible and ineffectual in the latest negotiations. His biggest blunder was to insist that the entire $24 billion deficit be fixed by June 30, even though a bipartisan Assembly and Senate Democrats had a solution to buy time.”

His failure to allow for a stop gap measure not only means there will be IOUs issued to state workers, but it also means that the state will have to find an additional $3 billion to cut.
As the Mercury News point out, Democrats have given in to social service cuts, but Republicans like the Governor have failed to reciprocate.

“Now, because K-12 cuts they proposed to lower Proposition 98 funding had to be approved by the end of the fiscal year, the new budget will be even harder to balance. And $3 billion in IOUs that the state will issue this month — assuming banks will honor them — plus the state's inevitable junk-bond rating will cost billions more in interest payments. Schwarzenegger's stubbornness will cost Californians dearly.

So will his rigid stand against any higher tax or fee, even though he supported much higher taxes in the February budget than the $2 billion in tax increases on tobacco and oil production that Democrats have now proposed.

Democrats have given in to severe cuts to social services and K-12 and higher education, but at least they took a stand against unconscionable cuts threatening children's health insurance and aid for college students. They proposed a modest $15 fee on automobiles to keep state parks open.”

Now the state faces a far worse crisis—a mounting cashflow problem as Controller Chiang eluded to. Much of this could have been avoided had the Governor simply been willing to take the cuts on the table and work toward a full deal. When he refused, we have now run out of options.

Already the Governor have proposed additional furloughs to state workers and of course those IOUs. At some point, the economy will suffer for the inactions of the legislature and Governor, far more than the actions that they might have taken.

The Mercury News concludes:

“Over last weekend, Schwarzenegger finally threw out the framework for a possible compromise: tighter enrollment for welfare, fraud investigations into Medi-Cal and a rollback of pension benefits for new state workers. It's unclear how much fraud hunts would save, but the pension change would save the state tens of billions of dollars over time — though not a penny this year. Had Schwarzenegger not tried to just ram it down Democrats' throats, he might have gotten a deal. He still could get one in coming weeks, when the Legislature returns to deal with a financial emergency he compounded.

Once the nation's envy, California is slipping into the abyss. Instead of helping, Schwarzenegger gave it an extra shove. “

Posted on July 02, 2009

Comments

Why is California slipping into the abyss? Because socialism stops working when you run out of other people's money. Someone needs to take a close look at the impact of demographics - retirement of baby-boomers and in migration of poor - on revenue and expense projections for 2010 -2020. Losses in the market will cast a shadow.
Why not get serious about curtailing population growth, cutting education expenses by lowering salaries and increasing class sizes (and dealing more forcefully with student unruliness to enable larger classes), cutting state university costs by eliminating economically unproductive courses, and reducing the number of professors (Teaching Assistants can do an excellent job in most courses, even graduate courses)?
A transformation to Home Rule might also be helpful - start with boards of education and school budgets. Oakland's budget should be set by the people of Oakland, not by Alameda County and the state.

Posted by: Erik Kengaard at July 2, 2009 08:39 AM

His biggest blunder was to insist that the entire $24 billion deficit be fixed by June 30, even though a bipartisan Assembly and Senate Democrats had a solution to buy time.”

Actually, no. His biggest blunders were the years he wasted trying to talk sense into the majority dems. Even with disaster staring them in the face now they just want to kick the can down the road - pushing todays problems into the future.

He's trying to actually fix it. NOW.

Posted by: George Hanshaw at July 2, 2009 10:07 AM

I am amazed at this philosophy that believes that by denying Californians a good education, decent health, an adequate earning and security for years of service is good for California. I pay taxes too. But when I go out I want to encounter qualified, intelligent people at my doctor's office, the hospital and competent staff at businesses. I want all Californians to have the option of finding decent employment, healthcare, a home and business to strive. That is what I believe makes California strong.

Posted by: AMoreno at July 2, 2009 04:35 PM

I have the answer to CA budget woes: Genocide... let the needy just die... it's more humane perhaps.

Hitler was good at it, Ahnold (former member of Hitler Youth Corps) would be good too.

It is the republican way... just don't pay for anyone that is in need of anything anytime... unless it's a new marina docking facility.

That is/will be the "final" solution to CA's budget crisis... exterminate all those "vermin" the elderly, the children, the infirm, the unemployed... erect a Statute of Liberty for CA... with this inscription: Gives us your tired and hungry and destitute and we'll kill 'em... kill 'em all... that way no new taxes.

Posted by: Reverend Mike at July 2, 2009 09:24 PM

PLESASE Tax me more!!!! I have no job, I don't have a place to live, I have no transporation and cannot afford a bus or cab, I pick my food and smokes from the trash-
oh, I dont pay taxes anyway- TAX Away
Tea?

Posted by: Gordo at July 5, 2009 10:26 PM

The legislators could help with the deficit. They can take a 50% pay cut and then refuse Per Diem. I don't get $14,000 a month,, do you? that might be a big help since there are a whole lot of legislators. We pay for all their stuff too, insurance, fuel, housing. Where should we cut the fat?,,, HAHAHAHA

Posted by: Bobbie at July 21, 2009 01:19 AM

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