California's budget crisis even worse than admitted

Thomas Lifson
If polls are correct about the outcome of today's vote on a series of ballot measures to raise taxes and supposedly rein in spending, California's tax-happy government will find itself in a corner. The measures look as though they will be defeated. California voters have a history of turning down tax increases when they are put up as ballot measures.

John Wildemuth of the San Francisco Chronicle outlines the two scenarios offered by the Governator following the election:
Schwarzenegger announced his May budget revisions Thursday, two weeks ahead of schedule, so he could release the figures before today's election. He released two plans: one assuming voters approve the measures, the other assuming the measures fail.

The first projects a $15.4 billion deficit and calls for $6 billion in borrowing and deep cuts in education, social services and other state programs to balance the budget. The second, which projects the loss of the $6 billion the measures would raise, slashes state programs deeper to close a $21.3 billion shortfall.

Californians already pay a 9% sales tax (more in certain places) and up to 10% in state income taxes, not to mention hefty fees on auto licenses and other state services. The state spends mega-billions on providing services for illegal aliens, and the state government is not known as a careful shepherd of taxpayer funds.

Politicians are holding vital state services hostage to voters, warning of mass releases of prisoners, cuts to fire and police, and other draconian measures. All the polls I have seen suggest voters aren't buying. They feel, with justification, over-taxed and under-served.

Even if the ballot measures pass, the state will still face billions in deficits. And these projections do not even take into account some of the biggest financial obligations which have been studiously ignored in budget calculations. The news is far worse than admitted.

Dan Walters, the dean of state government reporters, writes in the Sacramento Bee:

...a potentially huge increase in the "contribution" that the state must make to the California Public Employees' Retirement System to cover public pensions.

CalPERS has seen its once- immense investment portfolio shrink dramatically, due to recession and some truly boneheaded investments, such as a $1 billion haircut on raw land in Southern California. Big increases in pension benefits, enacted a decade ago, are also a factor. ...

An even bigger headache is a new requirement that state and local governments identify and quantify their obligations for providing health care to their retired employees. The state auditor's office and an advisory commission told the state two years ago that its unfunded liability for health care is $48 billion.

State officials were advised to commit $3.73 billion during the current fiscal year to begin shrinking the unfunded liability, but the state is paying just $1.36 billion to cover its current costs.

The Legislature, under the sway of unions, rejected Gov. Arnold Schwarzenegger's plan to overhaul employee health care to save money....

Over a year ago, I warned that state bankruptcy, supposedly unthinkable, could not be ruled out. The situation has gotten far worse over the last 12 months. But even if the state were put into bankruptcy, President Obama can be expected to launch a bailout effort to preserve the unions' contracts as a first priority.

For decades, the most powerful forces in the state legislature have been the public employee unions. State (and many local) workers enjoy large salaries and gold plated retirement and health care benefits.

If the state insists on releasing prisoners as an economy measure, how about considering outsourcing incarceration services to entities that are not obligated to pay prison guards as much as they earn in California? Sheriff Joe Arpaio of Maricopa County (Phoenix) houses prisoners in the Arizona desert in tents, and feeds them very cheaply, for instance. It doesn't have to cost tens of thousands of dollars a year per person to protect society.

California is going to be a mess. An object lesson for the other states, but a potential catastrophe for many of the 35 million or so of us still hanging on here. Released felons, fewer police and fire fighters, but fat retirement benefits for bureaucrats. All in a state subject to wildfires and earthquakes.
If polls are correct about the outcome of today's vote on a series of ballot measures to raise taxes and supposedly rein in spending, California's tax-happy government will find itself in a corner. The measures look as though they will be defeated. California voters have a history of turning down tax increases when they are put up as ballot measures.

John Wildemuth of the San Francisco Chronicle outlines the two scenarios offered by the Governator following the election:
Schwarzenegger announced his May budget revisions Thursday, two weeks ahead of schedule, so he could release the figures before today's election. He released two plans: one assuming voters approve the measures, the other assuming the measures fail.

The first projects a $15.4 billion deficit and calls for $6 billion in borrowing and deep cuts in education, social services and other state programs to balance the budget. The second, which projects the loss of the $6 billion the measures would raise, slashes state programs deeper to close a $21.3 billion shortfall.

Californians already pay a 9% sales tax (more in certain places) and up to 10% in state income taxes, not to mention hefty fees on auto licenses and other state services. The state spends mega-billions on providing services for illegal aliens, and the state government is not known as a careful shepherd of taxpayer funds.

Politicians are holding vital state services hostage to voters, warning of mass releases of prisoners, cuts to fire and police, and other draconian measures. All the polls I have seen suggest voters aren't buying. They feel, with justification, over-taxed and under-served.

Even if the ballot measures pass, the state will still face billions in deficits. And these projections do not even take into account some of the biggest financial obligations which have been studiously ignored in budget calculations. The news is far worse than admitted.

Dan Walters, the dean of state government reporters, writes in the Sacramento Bee:

...a potentially huge increase in the "contribution" that the state must make to the California Public Employees' Retirement System to cover public pensions.

CalPERS has seen its once- immense investment portfolio shrink dramatically, due to recession and some truly boneheaded investments, such as a $1 billion haircut on raw land in Southern California. Big increases in pension benefits, enacted a decade ago, are also a factor. ...

An even bigger headache is a new requirement that state and local governments identify and quantify their obligations for providing health care to their retired employees. The state auditor's office and an advisory commission told the state two years ago that its unfunded liability for health care is $48 billion.

State officials were advised to commit $3.73 billion during the current fiscal year to begin shrinking the unfunded liability, but the state is paying just $1.36 billion to cover its current costs.

The Legislature, under the sway of unions, rejected Gov. Arnold Schwarzenegger's plan to overhaul employee health care to save money....

Over a year ago, I warned that state bankruptcy, supposedly unthinkable, could not be ruled out. The situation has gotten far worse over the last 12 months. But even if the state were put into bankruptcy, President Obama can be expected to launch a bailout effort to preserve the unions' contracts as a first priority.

For decades, the most powerful forces in the state legislature have been the public employee unions. State (and many local) workers enjoy large salaries and gold plated retirement and health care benefits.

If the state insists on releasing prisoners as an economy measure, how about considering outsourcing incarceration services to entities that are not obligated to pay prison guards as much as they earn in California? Sheriff Joe Arpaio of Maricopa County (Phoenix) houses prisoners in the Arizona desert in tents, and feeds them very cheaply, for instance. It doesn't have to cost tens of thousands of dollars a year per person to protect society.

California is going to be a mess. An object lesson for the other states, but a potential catastrophe for many of the 35 million or so of us still hanging on here. Released felons, fewer police and fire fighters, but fat retirement benefits for bureaucrats. All in a state subject to wildfires and earthquakes.