Plenty of Other Casualties

Whether motivated by those who report it or those who consume it, the "news" is curiously one-dimensional. Myriad crimes and acts of indiscretion are committed, but just a few become the focus of popular attention. Many individuals and businesses experience major success (or dramatic failure), but only some are thrust into the limelight.

Even in terms of the current economic crisis, the focus often seems to be limited. Take, for example, the media circus surrounding the meltdown in California. While the issues there are serious and far-reaching, the "Golden State" is not the only casualty of plunging tax revenues and the rising costs of maintaining a social safety net, among other things. In "The Crisis Isn't California's Alone," BusinessWeek gives us the lowdown.

Forty-seven states face budget gaps, according to a study, and there aren't a lot of good solutions

It's been a tough week for the Terminator everywhere but the box office. On May 19, California voters solidly rejected a series of ballot initiatives that would have provided Governor Arnold Schwarzenegger with short-term fixes to help patch the state's $21 billion budget deficit. Then, while in Washington, Schwarzenegger got the cold shoulder from Treasury Secretary Timothy Geithner and legislative leaders when he asked the federal government to help guarantee some of the state's future borrowings. Back in California on May 21, Schwarzenegger said he'd gotten the message and was asking his budget team to go back to the cutting board. "The people want Sacramento to live within its means," he said.

It's a message politicians across the country have to come to grips with. According to the nonprofit Center on Budget & Policy Priorities, some 47 states face budget gaps in the 2010 and 2011 fiscal years. (Hats off to you Montana, Wyoming, and North Dakota.) The collective shortfall is a staggering $350 billion. Congress offered some relief with $140 billion in state funding packed into the $787 billion stimulus bill passed in Februrary. California is set to receive $8 billion of that. But the appetite in Washington to work out additional funding for the true basket cases like California is nil. "They all got something in the stimulus bill," says Brian Riedel, a senior policy analyst at the Heritage Foundation. "No other state has requested a special bailout."

That leaves states turning to a mixed bag of revenue hikes and expense cuts. Governors have announced furloughs of state workers, layoffs, fee hikes, and across-the-board spending cuts. Sixteen states are enacting tax hikes and 17 others are considering doing so. "The size of the gap puts everything on the table," says Arturo Perez, a fiscal analyst at the National Conference of State Legislators.

The California state legislature will now have to consider many more cuts. They'll range from relatively smaller items—a $4 million-a-year poison-control hotline that gets 900 calls a day—to sweeping cuts in health-care spending that will reduce coverage for 2 million poor state residents. "These are folks who may go to the emergency room, but they'll face the bills afterward," says Anthony Wright, executive director of advocacy group Health Access California. "If you're trying to lift yourself out of poverty, that won't help you."

Tax Oil Producers Instead?
California legislators had already passed $16 billion in spending cuts and $12 billion in fee hikes to tackle the current fiscal year's budget. Schwarzenegger says his own office has been reduced by 27 positions, to 147 people, and remaining staffers are taking a 9% pay cut. State legislators, though, say the governor's decision this week to stop pursuing short-term borrowings came as a surprise to them. Noreen Evans, a Democrat who chairs the budget committee in the State Assembly, says she was against borrowing more money to begin with. She thinks the fix lies in a number of spending cuts and tax increases—everything from putting a sales tax on tickets to sporting events to the $750 million a year that could be gained from taxing oil production in the state. "We should think about taxing oil producers before we cut health care coverage to 200,000 children," she says.

Some see California's fiscal crisis as an opportunity to address structural problems with the state's government. California is one of only three states that requires its legislature to pass laws by a two-thirds vote rather than by a simple majority. That leaves it subject to recurring stalemates and compromises with the Republican minority. "If the legislature can pass a majority rule, it can more easily cut spending and raise taxes," says Rick Jacobs, whose Courage Campaign is pushing to eliminate the two-thirds rule. "Right now it is not responsible to the people of California," he says. "It's hamstrung."

Louis H. Schimmel Jr., who directs the municipal finance staff at the Mackinac Center for Public Policy in Michigan, says the crisis gives citizens everywhere an opportunity to reassess the role of government. "We need to take a new look at everything and decide how much government we want," he says. Schimmel was called by the state of Michigan twice in the past two decades to oversee runaway deficits for the cities of Hamtramck and Ecorse. "I went in with the understanding I would not raise taxes or figure out how to get more money," he said. "I was just going to cut."

Comments

[Jay Greathouse]

"Hats off to you ... North Dakota."

North Dakota ranked as most corrupt state.

"...the state legislature declined to pass a law in the last session that would have cut off state pensions for public officials convicted of corruption. Why, the prudent legislators reasoned, should they have to pay twice if they get caught stealing from the public purse?" read the whole article at: http://urlet.com/buttons.practicing

so you have numbers you can trust? Or does it take corruption to run a positive balance sheet?

[tjo]

When the states have a collective shortfall of $350B for the 2010 and 2011 fiscal years, and federal money for the states is just $140B, where will that additional $210B come from? Yet more borrowing?

Where there is no accountability, the system is ripe for corruption. Complete financial collapse within a couple of years? Better prepare yourselves.

[Golfersteve]

Michael, good interview on Puplava last week. Keep up the good work, it's greatly appreciated by the little people like myself and likely many of the readers of your blog and books.

[Norman]

Calif's revenues (vs last year) are -39% for the last two months and -30% for the last three months. If this isn't a disaster I don't know what is.

Our media has kept this fact from us: that under Schwarzenegger our budget grew by 9% per year. If it grew at inflation plus population growth we wouldn't have had a deficit.

The WSJ reported that if state employees work 30 years they get a lifetime pension of 95% of their salary. More red ink ahead.

The recent proposition defeats show how out of touch the governor and Democratic legislature is. If this was a parlimentary system they'd all have to resign.

[HSPencer]

Since retiring from the US Army in 2002, I have spent my time running six apartment complexes that are under either Rural Development, or HUD. I currently run two Elderly and Disabled complexes, and four Family complexes. It is true that Rental Assistance from Rural Development and HUD is Federally funded. However, in the process of running these properties, one sees a huge amount of payments to tenants in all areas from the State. A State pays untold amounts of money to people who either cannot or will not work at a paying job. It is no wonder to me, that State Income Tax and the payments to the State of Federal Dollars, are not nearly enough for the State to keep up. The sad part is that much of this could be avoided. Anything from unemployment to other State assistance is flowing like a waterfall into some many people who should and could be earning their own living. What is going on is just too stupid and unacceptable to comprehend!!!!

[Rocky]

If California got its fair share of the stimulus money based on population, it would receive about 13% of the $140 billion, or $18.2 billion, instead of only $8 billion (or 6%) mentioned in the article. Again, California gets screwed. Then there is the problem of providing free schooling and medical care to the millions of uninsured illegals and their "anchor babies". Border control is a Federal responsibility, but State residents are paying for the Federal government's failure to control the border. The State does not have the power to deny various benefits to those residents but bears a disproportionate share of the burden of dealing with the illegal immigration problem. If the US were not playing the role of policeman to the world, it could afford to better deal with its domestic problems. If the republic fails, it will be because we rotted from within, not because we were attacked from without. 9/11 resulted in fewer than 3,000 dead. The US death toll in Iraq exceeded the 9/11 death toll by the end of 2006. Every year many more thousands of Americans are killed by other Americans in the US than were killed in the 9/11 attacks. In 2006, nearly 15,000 murders took place in the US, according to FBI statistics. As California goes, so goes the nation.