California Slides Into The Sea

by hilzoy

It sounds as though California is finally melting down politically:

"The state of California — its deficits ballooning, its lawmakers intransigent and its governor apparently bereft of allies or influence — appears headed off the fiscal rails.

Since the fall, when lawmakers began trying to attack the gaps in the $143 billion budget that their earlier plan had not addressed, the state has fallen into deeper financial straits, with more bad news coming daily from Sacramento. The state, nearly out of cash, has laid off scores of workers and put hundreds more on unpaid furloughs. It has stopped paying counties and issuing income tax refunds and halted thousands of infrastructure projects.

Twenty-thousand layoff notices will go out on Tuesday morning, Matt David, the communications director for Gov. Arnold Schwarzenegger, said Monday night. “In the absence of a budget we need to realize this savings and the process takes six months,” Mr. David said.

After negotiating nonstop from Saturday afternoon until late Sunday night on a series of budget bills that would have closed a projected $41 billion deficit, state lawmakers failed to get enough votes to close the deal and adjourned. They returned to the Capitol on Monday morning and labored into the evening but still failed to reach a deal. They planned to reconvene at 10 a.m. Tuesday to go at it again.

California has also lost access to much of the credit markets, nearly unheard of among state municipal bond issuers. Recently, Standard & Poor’s downgraded the state’s bond rating to the lowest in the nation.

California’s woes will almost certainly leave a jagged fiscal scar on the nation’s most populous state, an outgrowth of the financial triptych of above-average unemployment, high foreclosure rates and plummeting tax revenues, and the state’s unusual budgeting practices. (...)

The roots of California’s inability to address its budget woes are statutory and political. The state, unlike most others, requires a two-thirds majority vote in the Legislature to pass budgets and tax increases. And its process for creating voter initiatives hamstrings the budget process by directing money for some programs while depriving others of cash.

In a Legislature dominated by Democrats, some of whom lean far to the left, leaders have been unable to gather enough support from Republican lawmakers, who tend on average to be more conservative than the majority of California’s Republican voters and have unequivocally opposed all tax increases."

They need three (3) Republican votes in each house. They can't get them. And this despite the fact that the Republicans who have been negotiating have gotten a lot, including, according to the LATimes, "tax breaks for corporations". 

Really. I am not making this up. With the state budget $41 billion in deficit, Republicans held out for corporate tax cuts, and then aren't even supporting the resulting bill.

One detail is particularly telling: they're suspending a bunch of infrastructure projects. This is a bad idea in a recession, However, these aren't just any job-producing, demand-enhancing, public safety-promoting projects:

"The projects, which include upgrades to 18 bridges and roads in Los Angeles to protect them from collapsing in earthquakes and cost $3.8 billion, had been allowed to continue operating as others were suspended because the state was running out of cash. 

The projects to be suspended today had been exempted from a November order to stop public works because of the significant financial cost of canceling contracts, the expense of resuming them or the public-health or public-safety ramifications. The list also includes work to eliminate arsenic in the City of Live Oak and half-built highway construction projects."

According to Calitics (h/t), it will cost California $191 million to shut the projects down, and $192 million to start them back up again once a deal is struck. So shutting down the government will mean spending nearly $400 million of taxpayers' money for nothing, and all in the name of fiscal responsibility.

It's been a while since I lived in Southern California. I remember some of the Southern California Republicans being a little on the nutty side. But this is flat-out insane. 

Comments

[Matthew Austern]

You didn't mention one of the most important facts about this, possibly because you thought it was too obvious. You probably ought to point it out, though, because most non-Californians probably don't know it: the reason we need 3 Republican votes is that budgets in California must be passed by a 2/3 majority in both houses. It's not that our Republican politicians are stupider than the ones in any other state; it's that we have a badly broken constitution.

Think about all of the negotiations and drama it took to get the Federal stimulus bill passed, which required a 60% majority in the Senate. Now imagine that we needed a supermajority in the House as well, and that it's a 67% supermajority instead of 60%. That's what we go through in California every year.

No, I'm not defending the California Republican Party. But the fact that they're able to wreak the state like this is a structural problem.

[Amanda in the South Bay]

One of the prime offenders,Abel Maldonaldo, is from my neck of the woods- a weasly pos who represents the area from SLO to the southern portions of Santa Clara County.

[Amanda in the South Bay]

The problem is that the California GOP sounds like a bunch of College Republicans from the late 70s who think everything that is wrong with the world can be cured by reading enough Friedman or Hayek.

Eventually, the CA GOP will wither into oblivion with crap like this. However, I am sure the business and media elite will be all over Meg Whitman's run for govenor.

[Mike Schilling]

It's completely insane, and everyone involved should be locked up naked in a refrigerated room without food or water until a budget is passed.

[Karen]

It's not that our Republican politicians are stupider than the ones in any other state; it's that we have a badly broken constitution.

I agree that we Californians have a badly broken constitution, but we also lack moderate Republicans. Somehow the districts that vote Republican tend to go for far-right nutjobs. (Admittedly we have our share of far-left nutjobs, too, but we do have some moderate Democrats.)

[Michael Cain]

Looking across several states' budget problems, I am struck by how consistently the size of their budget hole matches the size of the state share of Medicaid. I'm not sure that any useful analysis can come out of that observation. But at least in my state, one can make the argument that over the last 20 years and given the tax rates voters seem to be willing to tolerate, Medicaid has slowly been starving all of the other major program areas. When the Right talks about cutting spending at the state level, Medicaid is clearly the type of program they would like to see cut. Is it a third rail program? Or will we see GOP legislators and/or governors suggest that their state consider withdrawing from the program so that they can focus on K-12 education, roads, etc?

[Phil]

Tangential, but hilzoy, if you had gone with "California Tumbles Into The Sea," you could have joined the von/publius/Eric axis of Song Lyrics as Post Titles. :)

[PaulW]

All must perish before their great God Norquist can be truly appeased. I swear to you, Grover hopping about his 5-car garage mansion gleefully chanting "I get to drown ANOTHER state in the bathtub, oh boy!"

I'm sorry. I thought California HAS A FRICKIN RECALL SYSTEM where the voters can petition for a special election SO THEY CAN THROW THE CRIMINAL BUMS OUT. Wait, I just realized. If the government collapses there won't be any Dept of Elections to supervise a recall, would there? Damn, those conservatives are trickier than I thought...

[TJ]

It's not really insane when the crew locks the steerage passengers in so there are enough lifeboats for first class. Conscience-less certainly, but not crazy for greedy egomaniacs.

[Zach]

I don't know that it's necessarily dangerous, given the mitigating influence of the appeals process and the large size of the Supreme Court, to effectively prevent anyone with a radical judicial philosophy from getting to the Federal bench. I guess the Supreme Court would be a little busier if judges in the lower courts unduly bucked precedent. There are other effects I could speculate on as well, but they seem pretty minor compared with the benefit of greater intellectual diversity in the judiciary.

I wouldn't be happy with many judges seated by Bush if there were a 50-vote threshold in the Senate, but I'd be happy to know that membership in the ACLU or the Federalist Society is no longer grounds for opposition. Anything that puts us past the absurdity of having to nominate the youngest possible candidates who've led the lives of boy scouts and haven't taken a public stand on anything is fine by me.

An alternative might be to remove the supermajority requirement for nomination but add the capacity for a supermajority to remove someone from the bench at any future date (without the current criminal requirements of impeachment). That wouldn't happen because it requires amending the constitution, though.

[AndrewBW]

For those who might have missed it, there's a second AP story tagged onto the end of the California story:

Kansas in Budget Deadlock

TOPEKA, Kan. (AP) — Kansas has suspended income tax refunds and may not be able to pay employees on time, the state budget director said Monday.

The state does not have enough money in its main bank account to pay its bills, prompting Gov. Kathleen Sebelius, a Democrat, to suggest transferring $225 million from other accounts throughout state government. But the move required approval from legislative leaders, and Republican leaders refused to consent on Monday.

Duane A. Goossen, the budget director, said without the money he was not sure the state could meet its payroll. About 42,000 state employees are scheduled to be paid again on Friday. He said the state stopped processing income tax refunds last week.

Republican leaders are hoping to pressure Ms. Sebelius into signing a bill making $326 million in adjustments to the budget for the fiscal year that ends June 30.

http://www.nytimes.com/2009/02/17/us/17cali.html?pagewanted=2

That should be fun!

[mckinneytexas]

Hasn't California been on the brink for more than a decade due to profligate spending, mostly by Democrats? And Republicans are the bad guys because they won't keep spending? I know of at least one Fortune 500 company that moved recently from California to Texas--does anyone want to hazard a guess why? California should have gotten its financial house in order years ago. It did not and it failed to do so under liberal Democratic governance. I have yet to see anyone but the rare fiscal conservative around here who suggests spending restraints on anything but national defense. The fact that California has bottomed out in its credit rating is proof enough that three votes here or three votes there is only a short term stopgap. The state will go under as any incompetently run enterprise should.

[Awesom0]

I've got only one retort to your incredibly tired and utterly ridiculous assertion that Republicans are the stalwarts of fiscal responsibility: Every Republican president after Eisenhower has left the deficit higher and the dollar weaker than when they left. From 2000 to 2006, Bush and his Republican Congress approved 30 trillion in un-funded liabilities.

I reckon this entitles you to a Super Big Gulp of STFU.

[Comrade Dread]

Spending has continued to go up yearly despite market crashes which yield fewer tax dollars.

Between corporations, who hold the right, and public employees unions, who hold the left, nothing is getting done to resolve the ever increasing spending and budget woes, because no one has the fortitude to do what needs to be done to reform the state budget.

Instead, we get a mixture of corporate tax cuts and regressive tax increases at a time when the poor and middle class can least afford them.

I'm almost rooting for a bunch of bankruptcy judges to come in and make the changes needed to solve this long term without dumping the burden on the poor and middle classes.

[hilzoy]

Awesom0: Did I say that they were fiscally responsible? No. I said that they were doing things that they said were in the name of fiscal responsibility, but that were in fact nuts, considered in that (or most any other) light.

[Phil]

I think Awesome0 was responding to mckinneytexas, not you, hilzoy . . .

[Bernard Yomtov]

Maybe this situation sheds some light on the filibuster threads.

[Awesom0]

Yeah, I was responding to Mckinneytexas (I forgot to note this in the comment), not you Hilzoy - this was a great post.

That said, parts of my comment were a bit childish (read: the "STFU" part), but I comments like these have been making me see red lately.

[hilzoy]

Ah, OK. Not enough coffee yet; sorry. ;s

[tgirsch]

I dunno, I chuckled at the Super Big Gulp remark. I guess that makes me childish, too.

Anyway, on-topic, as has been pointed out by PaulW among others, this is precisely what the Republicans want (and not just in California). They want to kill expensive social programs, but doing so is politically impossible unless you first bankrupt the country. So "bankrupt the country" has been a top item on the agenda. Starve the beast, anyone?

[Hartmut]

As for companies "fleeing" from California to Texas, I think that if a US state would go Nazi/1984/Norquist-wet-dream and force its citizens to work unpaid under concentration camp conditions with 'inefficiency' being punished by death then corporations would queue to open factories in that state. In other words, if moving corporations were considered the criterion for judging a state then someone should check his/her moral compass. Your standard mega-corporation does not care about ethics or welfare and prefers 'free' workers only because slaves tend to be less productive (unless there is an unlimited supply, so that one could be 'harsh' with them). [Warning: cooling system overstrained]

[GoodOleBoy]

I don't know about corporations leaving California but I spend much of my time in western states (not California) and I personally know a number of families who have left California because they could see this slide into the sea. Sometimes it is not a question of 'starve the beast' but rather the fact that there is just no more food.

[joel hanes]

Note that in the NY Times story hilzoy quotes, one must read down to paragraph eight to discover that the budgets created by the Democratic majority are being blocked by an intransigent Republican minority that refuses to allow any tax increase of any kind under any circumstance.

Note also that the summary of the situation posted by mckinneytexas is factually incorrect in most of its particulars (we had a budget surplus under the last Democratic governor, for example).

[Sebastian]

"Hasn't California been on the brink for more than a decade due to profligate spending, mostly by Democrats? And Republicans are the bad guys because they won't keep spending?"
This isn’t accurate. The answer isn’t going to make anyone happy, but both sides have been completely crazy for at least ten years. The Democrats used the tech-bubble era taxes to justify enormous increases in spending, and never adjusted to post-bubble levels of income. The Republicans dug in on taxes to cover the ridiculously ballooning spending, but haven’t even tried to cover the taxes necessary for everything else. Because of the majority rules for spending but super majority for taxes, both sides coasted along as if no compromises were necessary for more than a decade. The Democrats kept spending more and more and more, even though they couldn’t raise taxes. The Republicans didn’t even try to figure out what was good or what was bad in taxes, they just resisted everything. And now the disaster strikes. California spent 40% more per capita in real dollars between 1990 and 2000. That was an enormous increase in spending. Most of it happened in the last 3 of those 10 years. The fact that it wasn’t backed by taxes, is stupid. And that part is largely Republican’s fault. But in any normal budget analysis a 40%, real dollar (non-inflationary), per-capita increase would have to be looked at as a huge contributing factor.
And I can’t find the statistics, but I strongly suspect that county spending (based on property taxes from the housing bubble) has an even worse version of the exact same story—though with no particular party behind it. There is another public pensions scandal (is this the 3rd? I hardly pay attention any more) brewing in San Diego County and I understand it isn’t unique. Very thumbnail: in negotiating with public unions, the county couldn’t pay hugely more at the moment, so they sweetened the deal with very generous defined benefit pension benefits. These were based on projections of tax receipts from property taxes as if they were going to increase indefinitely at the same rate as they did from 2000-2005. Some of these deals were so nice that it is possible to receive more than 100% of ending salaries for the rest of your life upon retirement in addition to full medical outside of Medicaid. And so far as I can tell, the kind of fiscal disaster those kind of promises are going to cause aren’t even counted in the state problem.

[GoodOleBoy]

I have been around for a long time and I can remember when there were numerous discussions about disparities in welfare benefits and education spending among states and my recall is that California was attractive in this regard to people who wanted to take advantage of these offerings so there was a great influx of people to California. Obviously, there are also a lot of Mexicans there. The state has had profligate spending habits for a long time, so long, I cannot even remember the number of the ballot proposition that limited real estate tax increases. For some people, personal experience is the only effective teaching tool and it can be harsh.

[Anderson]

Sounds plausible, Sebastian.

The scandal of underfunded (or NONfunded) pensions & health benefits is a national one, it appears. Bailout, anyone?

[Phil]

Obviously, there are also a lot of Mexicans there.

Unlike Texas, of course.

[Gary Farber]

"Obviously, there are also a lot of Mexicans there."

The relevance of this is?

[Bernard Yomtov]

The scandal of underfunded (or NONfunded) pensions & health benefits is a national one, it appears. Bailout, anyone?

If I may be curmudgeonly, it is a scandal brought on by a bipartisan mix of stupidity, innumeracy, greed, and lack of principle, which has led to a lack of principal.

[Phil]

Hispanic* population as of 2007**:

California 36.17%%
Texas 35.98%

Difference of: 0.19%

Since we're apparently supposed to be contrasting Texas and California here, I too wonder at the relevance of "Obviously, there are also a lot of Mexicans there," given this statistic.

*Substituting "Hispanic" since GoodOleBoy apparently can't differentiate between Mexicans, El Salvadorans, Guatemalans and other scary brown people.

** Via.

[Sebastian]

"Obviously, there are also a lot of Mexicans there."

Oh good heavens. I strongly suspect you are mobying, but in case you aren’t, please don’t be on my side. I don’t have the reports in front of me (anyone help?) but last I saw, illegal immigrants paid more in taxes than they ever used in services, and legal immigrants aren’t typically on the dole.

[John Thacker]

Somehow the districts that vote Republican tend to go for far-right nutjobs. (Admittedly we have our share of far-left nutjobs, too, but we do have some moderate Democrats.)

This is because of gerrymandering, which, by making legislative seats safe, also helps ensure extremists. Of course, the Governor proposed a nonpartisan commission to end the gerrymandering, but that got voted down.

Also interesting how the state Democrats were perfectly happy to cut social programs for the poor and various other critical programs, but what seems to upset them more is the idea of layoffs of state workers or touching the pensions of the prison guards.

"Obviously, there are also a lot of Mexicans there."

Unlike Texas, of course.

Texas has the strong advantage of not having a state income tax, and relying on sales and property taxes. It's much harder for people to hide a house than other sources of income. Illegals tend to pay property taxes; if they rent, then the landlord pays the property taxes.

This helps make it much easier to Texas to accommodate immigrants, even illegal immigrants, than California.

California's budget depends far too much on income tax from the very wealthy, and those revenues crater during recessions like this. (Obviously the very rich can take the hit personally, but it really affects the state budget.)

[Fledermaus]

All i can say is that if my tax refund were delayed i'd go to court and ask for interest and penalities.

[bbartlog]

it will cost California $191 million to shut the projects down, and $192 million to start them back up again once a deal is struck. So shutting down the government will mean spending nearly $400 million of taxpayers' money for nothing, and all in the name of fiscal responsibility.

Only if all these projects actually come back. Which seems unlikely to me.
If California could still borrow money, it would be reasonable (in a Keynesian way) to say they should fund all these projects. But since their credit rating is shot, they really do need to balance the budget; and given the desperate situation they're in I don't expect infrastructure projects to come before things like wages for state workers. In short, shutting this stuff down may well save them money, even if costs money to do so.

[Jay C]

@ Amanda itSB:

If the California GOP actually IS stuck in the "late '70s" mentality, it would still represent significant progress from the state Party's traditional mindset; which, AFAICR, was mired in the attitudes of the late-1920s until forever. No taxes, no services, minimal government (except for law enforcement), and the latter stressed mainly as the CA GOP seems rarely to have reconciled itself with the Golden State no longer being a (politcally) all-white State.

@ Phil:

I think hilzoy's post actually does meet the blog-post/song-title requirements (even if not up to Eric's exacting standards) - viz: Warren Zevon's "Desperadoes Under The Eaves"

[mckinneytexas]

So the issue in California is the Dems spend too much and the Repubs won't tax enough to fund the spending? Seems to me the spending preceded the refusal to tax. In either event, Dem partisans can get as mad as they want to when someone points out it is Dem spending, not Repub, that is the root cause. Refusal to tax? I think you mean refusal to tax even more.

Government cannot be an endless cornucopia of benefits without going under, as California has done. And, if I recall, Gray Davis was the last California Democratic governor. He did not leave the state with a budget surplus.

[Carleton Wu]

Texas has the strong advantage of not having a state income tax, and relying on sales and property taxes. It's much harder for people to hide a house than other sources of income. Illegals tend to pay property taxes; if they rent, then the landlord pays the property taxes.

If illegals work legal jobs, they're using fake SSNs; so they're paying taxes without any real hope of getting benefits. Ought to be a windfall for the state, really. And are you seriously arguing that the failure of low-income illegals working non-SSN jobs to pay income taxes is a significant source of Cali's fiscal issues? People making 5$/hr wouldn't contribute significant income taxes anyway.

[Gary Farber]

"So the issue in California is the Dems spend too much and the Repubs won't tax enough to fund the spending? Seems to me the spending preceded the refusal to tax."

Seems to me the most relevant question is whether the specific spending is a good idea or not, and does it save money in the long term, or not?

"Spending" itself is neither inherently good nor bad, and certainly no one is simply for "spending" in the abstract. It hardly seems useful to discuss "spending" without regard to spending on what.

[Carleton Wu]

California should have gotten its financial house in order years ago. It did not and it failed to do so under liberal Democratic governance.

I think maybe you didnt read the part where it takes 2/3rds of the legislature to do anything. Or maybe you don't know that the GOP has had in the past and continues to have enough of the legislature to prevent it from doing things solely on Democratic say-so.
Odd that you use the words "Democratic governance"- the GOP has held the governor's mansion in California for 22 of the last 26 years. It's almost as if you have no idea what you're talking about, and are merely grabbing familiar turns of phrase that make you feel comfortable.

[Fraud Guy]

However, as a caveat, my wife works in admissions in a hospital (not in CA), and often gets patients who are funded via public assistance. She has observed several patients who tend to have different names whenever they show up for treatment, and/or do not respond to the name on their ID when called, but give an unrelated "nickname" to be called by. Generally, the names do not reflect the ethnicity of the nicknames.

[mckinneytexas]

GF--if the sole criteria for more spending is whether the spending is a good idea, then there will be no limit to further spending, as there is virtually no limit to good ideas. There is, however, a very definite limit to the money to pay for good ideas. California is reaping the whirlwind. This is simply the end result of years of spending well in excess of income. I doubt if Californians are under-taxed, but they may be. Jack up the taxes another notch or two and see who stays and who leaves.

Also interesting is that, counter to the notion that government spending = stimulus, the California economy is, oddly, not booming.

[mckinneytexas]

"Odd that you use the words "Democratic governance"- the GOP has held the governor's mansion in California for 22 of the last 26 years."

If I am not mistaken, the Democrats have held both houses in California for decades, and spending originates in the houses, not in the governor's mansion.

But, if you can demonstrate that it was Republicans, not Democrats, who initiated and continued the spending binge, fine by me. Bad Republicans, Good Democrats. But I think the facts are otherwise.

[bbartlog]

And are you seriously arguing that the failure of low-income illegals working non-SSN jobs to pay income taxes is a significant source of Cali's fiscal issues?

I think you misread his argument. He basically indicated that the Texas tax scheme was less elastic (in terms of revenue response to a recession), in part because of the way the incomes of the wealthy were affected in California. Now it's true that part of that is because some of the Texas taxes are regressive (sales tax), but it has nothing to do with failing to tax the income of illegal immigrants in CA - which as you say would be not much revenue anyway.
You can see something similar in New York State, which also got a large amount of revenue from taxes on the very wealthy.

[Phil]

Also interesting is that, counter to the notion that government spending = stimulus, the California economy is, oddly, not booming.

And if anyone were positing that all government spending always equaled stimulus, with no other factors considered, this would be relevant. If you can find someone claiming that, I'm sure they'll take it up with you.

[(The Original) Francis]

Various points:

1. An earlier version of redistricting was defeated. However, a new version just passed in the last election.

2. School spending is set by initiative. While the formulas are incredibly complex, it boils down to K-12 counting for 40% of the budget.

3. The problems in Medicaid are split between liberal politics and federal mandates. But emergency departments have closed left and right; there is very little room left to cut.

4. What Sebastian never talks about when he complains about the per-capita expansion in the budget is the absolute explosion in the prison budget. California prisons run at about 200% of capacity. The health care system is under federal receivership. The system as a whole is now under order from a 3-judge panel to cut way back on the over-crowding.

Again, a lot of sentencing is set by initiative, with a lot of fear-mongering by conservative politicians, and silence from the more liberal ones.

5. Gov. S campaigned on eliminating the vehicle license fee. He won, and got his way. Had that one tax stayed in place, a big chunk of the structural deficit would have been eliminated.

6. The state essentially does 3 things: it Educates, Medicates and Incarcerates. Most of the cost of those programs are salaries. The remaining programs are much smaller. So, what do you want to cut?

[Sebastian]

“"Spending" itself is neither inherently good nor bad, and certainly no one is simply for "spending" in the abstract. It hardly seems useful to discuss "spending" without regard to spending on what.”
I partially agree. But I also think that looking at gross spending overall can give you a picture of a problem. A 40% real increase in spending per capita is indicative that somewhere in the 'on what' we have a serious problem. One of the issues that causes real problems in government spending is that unlike normal budgets, people act as if theoretically justifying individual expenditures is enough.

In a normal budget you might say, "Yes, having mud shoes and creek shoes and shoes for running and shoes for tennis and shoes for volleyball, and brown shoes to match your suit, and black shoes to match your other suit, and boots to match your dress-casual outfit is all individually justifiable by the fact that you should wear proper footwear, BUT in aggregate you spend too much on shoes and need to make choices to cut some out. But in government, it seems as if merely independently justifying an expenditure is enough.

And it isn’t just the left-wing that does it (though in the specific case of California that may be the case). Saying that the F-22 Raptor will maintain air superiority, may be TRUE, but that doesn’t mean that we should spend money on it even if you concede that maintain air superiority is an important value. Arguing that it costs about 10x the amount in real terms of previous efforts to maintain air superiority is in fact a good argument against it.

In 1990, CA had a pretty good, though not amazing, level of state services. In 2000, it was spending 40% more per capita in real dollars. That is straight up, a problem. The details are probably worth investigating, but if you don’t think that is a problem, if you think that is purely a revenue-side issue, you aren’t dealing with reality.

Now does that *justify* Republicans making things worse by driving the state’s economy into a ditch rather than raise taxes? No. But that isn’t the same question at all.

[Carleton Wu]

GF--if the sole criteria for more spending is whether the spending is a good idea, then there will be no limit to further spending, as there is virtually no limit to good ideas.

When you're faced with a choice in interpretation- did Gary mean "this is a good idea in general" or "this is a good thing to be spending money on right now given our fiscal situation"- I think you'd be charitable to assume the one that isn't idiotic in the context of fiscal policy. There may be conversations where people make policy pronouncements with no relation to the budget (eg "the government ought to provide lunches for all students"), but do you think that this is that sort of conversation?

Also interesting is that, counter to the notion that government spending = stimulus, the California economy is, oddly, not booming.

Im not even sure where to go with this. Are you suggesting that the two situations are genuinely parallel and you're unclear as to the differences, or are you just snarking?

[Carleton Wu]

I think you misread his argument. He basically indicated that the Texas tax scheme was less elastic (in terms of revenue response to a recession), in part because of the way the incomes of the wealthy were affected in California.

That may be a good point, but he also claimed that Texas's tax structure prevents illegals from going untaxed. That appears to be the main thrust of his point- and it certainly appeared in response to questions as to why the % of hispanics was worth raising in the first place.

[Carleton Wu]

If I am not mistaken, the Democrats have held both houses in California for decades, and spending originates in the houses, not in the governor's mansion.
But, if you can demonstrate that it was Republicans, not Democrats, who initiated and continued the spending binge, fine by me.

It's not just that you're mistaken- you've not read the parts of the thread where the peculiar laws of California are explained (ie budgetary actions require a certain number of GOP votes). Nor apparently are you familiar with the concept of a executive veto (California has one, btw, including line-item powers). Nor are you aware that (as in the federal government) the executive submits a proposed budget to the state house.
Unlike you, I am not attempting to blame all of this on one party; this makes me amenable to learning more about things rather than repeating allegations without even bothering to read the rest of the thread.

[Gary Farber]

"When you're faced with a choice in interpretation- did Gary mean 'this is a good idea in general' or 'this is a good thing to be spending money on right now given our fiscal situation'- I think you'd be charitable to assume the one that isn't idiotic in the context of fiscal policy"

I'm not sure "charitable" is the best word, but "correct" applies.

I'll try it slowly: no, spending is not a good idea if it can't be afforded.

Duh.

"One of the issues that causes real problems in government spending is that unlike normal budgets, people act as if theoretically justifying individual expenditures is enough."

Please name three such people. Anyone here? Any specific political leaders? Who?

Thanks.

[d'd'd'dave]

//6. The state essentially does 3 things: it Educates, Medicates and Incarcerates. Most of the cost of those programs are salaries. The remaining programs are much smaller. So, what do you want to cut?//

Everything. Cut every line item by 30%. Free 30% of the prisoners. Layoff enough state employees to reduce payroll and benefits by 30%.

California expenditures in 2008 were 30% more than in 1998 on a per capita basis in constant dollars.

Harsh? An empty checkbook is harsh.

[Phil]

I partially agree. But I also think that looking at gross spending overall can give you a picture of a problem. A 40% real increase in spending per capita is indicative that somewhere in the 'on what' we have a serious problem.

And yet you've thrown around the 40% number repeatedly, here and in other threads, without once delving into the "on what," so clearly you think that the number itself it sufficient to isolate the problem.

So, I guess I'll ask: On what has the 40% increase in per capita spending been spent?

[Sebastian]

"And yet you've thrown around the 40% number repeatedly, here and in other threads, without once delving into the "on what," so clearly you think that the number itself it sufficient to isolate the problem."

Yes I think the number in itself is entirely sufficient to strongly suggest a problem unless you believe that California was a complete disaster area before 1990.

[Phil]

So, you're not going to answer, "on what?" Super. Noted, and moving on.

[J. Michael Neal]

California spent 40% more per capita in real dollars between 1990 and 2000. That was an enormous increase in spending.

Sebastian, since the last time we went over this, I've had a chance to do some more digging. Quite simply, you're wrong. If we ask what level of service is being provided, per capita real spending might be a good indicator, though it still ignores the problem that the specific things that the government pays for have experienced higher inflation than general prices.

However, if the question is whether or not the government can support its level of spending, which is the subject of this thread, that's an irrelevant measure. What's important is the share of GDP devoted to spending. Using this measure, the California budget has not grown anything like you claim. In fact, if one avoids using 1990 as a convenient end point, it's gone down. I used these two sources:

California Budget Numbers
California GDP Numbers

As a percentage of GDP, California state expenditures in the various years were:

1980 - 7.6%
1990 - 6.5%
2000 - 7.7%
2005 - 7.2%

From 1990 to 2005, the state budget increased just under 11% as a share of GDP. However, the figure in 2005 was lower than it was in either 1980 (which was your original starting point) or in 2000. If the state could afford its level of spending in either one, it could afford it in 2005. I don't have more up to date data for both series.

Note that this also puts paid to your claim that spending rose an unsustainable amount because of three years of revenue increases due to the 1990 stock bubble. Even once that popped, state expenditures didn't go up as a portion of GDP. They might have gone up relative to the portion of GDP that is taxed, but that's not at all the same thing.

[KCinDC]

Sebastian, is the 40% increase calculated on the assumption that state spending should increase at the same rate as the cost of living, or does it take into account the rate of increase of specific functions the state is spending on -- especially medical care? I don't think the 40% figure alone is enough evidence that the problem is all about out-of-control growth of government programs, even though California wasn't a disaster area in the 1980s.

[Jim]

"It's almost as if you have no idea what you're talking about, and are merely grabbing familiar turns of phrase that make you feel comfortable."

Get used to this kind of thing. I see it all the time in Cif in the Guardian and on British blogs when the subject is some issue in the US - clueless foreigners pontificating for an audience that can't see through their flimsy posturing.

Actually, McKinney, the refusal to tax came first, in 1978, with Proposition 13, and the siyuation has deteriorated since then.

The core problem is the polarization in the Assembly that comes from jerrymandering. The Republican Party in California, centering in Orange County, may sound like Hayek-zombies from the late 70's, but they are in fact the public face of the John Birch Society, also centered in Ornage County. The other side of that polarization is a Democratic Party apparatus that is an entrenched machine.

[galenk]

As a CA resident, I tend to think that some form of default followed by a new constitutional convention would be best. IANAL, but I think the state cannot actually declare bankruptcy.

The Democratic party has been wholly captured by the unions in the state. The Republicans -- well I live in Silicon Valley and we never actually hear about real-life Republicans. I'm sure they're owned by someone, but I'm not sure who.

The state economy is incredibly dynamic and productive -- the only reason for this mess is the horrible politics.

[Jeff]

I thought California HAS A FRICKIN RECALL SYSTEM where the voters can petition for a special election SO THEY CAN THROW THE CRIMINAL BUMS OUT.

The problem is that the Republican "strongholds" -- Orange County, and especially Irvine, aren't as affected by the cuts as other areas. So they have no reason to throw the bums out.

Now if we had a rule such that every cut was applied first in the districts of those who approved it, we might see a lot more recalls of the Republicans.

[Sebastian]

"However, if the question is whether or not the government can support its level of spending, which is the subject of this thread, that's an irrelevant measure. What's important is the share of GDP devoted to spending. Using this measure, the California budget has not grown anything like you claim."

Why should this be the proper measure? I don't require more state services just because I earn more money. This is before the housing market craziness, so it isn't because you have to pay employees ridiculous amounts to afford housing or to welfare recipients so they can afford housing (note also that rents didn't skyrocket the way housing prices did at any extended point in question).

And tying expenditures to GDP is a stupid government policy anyway, because it would suggest that you make cutbacks at the time when you want government stimulus--during a downturn--unless you are follower of Keynes only during the downturn side of his prescription (which I strongly suspect of many liberals, but there we are).

Unless you are talking about GDP-specific services I don't see any reason why percentage of GDP is a better measure than per-capita expenditures to look at expenditures. And that is especially true at the state level.

[Ming]

I'm sorry to say this, but I live in California, and I've recently spoken with two of my "hard-core" Republican neighbors, and they want Obama to fail, and they want this so passionately, it's actually scary. Apparently, to make Republicans, "economic failure" is not a bad thing at all! All they want is to gain seats in Congress in the 2010 elections. I often criticize liberals (for example, I think it's a mistake to rescue GM and Chrysler yet again). But I'm honestly scared by the attitude of some Republicans that they really aren't all that bothered by the very real human economic suffering that's going on right now. They're happy to see California decline, as long as the Democratic Party declines with it.

[J. Michael Neal]

Why should this be the proper measure?

Because the question being asked in this thread is whether or not California can afford the level of spending it is currently engaged in. It isn't whether or not such spending is desirable. If Californians could afford the government they had in 1980, they can afford the one they have now. If there has been a deterioration in the state's finances, it isn't because spending has gone up relative to what it can afford, it's because tax rates have gone down relative to what it can afford.

As for whether or not this is the proper measure in terms of whether this is the "right" level of spending for the state, it isn't any worse than any of the alternative measures you've tried to use. If spending per capita is relevant, so is spending per dollar of economic activity. While your needs, strictly speaking, may not have gone up in real terms, this isn't the whole question. Your ability to afford things that you want has. Some of those things that you want are best provided by private businesses. Some of them need to be provided by the state. The latter are no less inherently justifiable than the former.

If you want to argue that spending is inappropriate, you're really going to have to give in and answer the people who want you to address specific programs on the merits. Dodging those questions by referring to overall ratios is just that: a dodge. If all you want to argue is that California's finances are broken in the sense of being unaffordable and out of control, spending relative to GDP is a much better measure.

[d'd'd'dave]

//If we ask what level of service is being provided, per capita real spending might be a good indicator, though it still ignores the problem that the specific things that the government pays for have experienced higher inflation than general prices.//

This is because government likes to pay more for things than the private sector does. They insist on paying union wage equivalents (Prevailing Wage) when non-union labor wins bids. Government is stupid to do so.

[Carleton Wu]

This is because government likes to pay more for things than the private sector does. They insist on paying union wage equivalents (Prevailing Wage) when non-union labor wins bids.

Or on paying sellers' prices for prescription meds when they could use their market share to bargain down the price like any private corp would. Stupid liberals.

[Gary Farber]

"Government is stupid to do so."

Sure, a decent rate of pay is something that wouldn't actually help citizens. Best to pay them as little as possible so they have to rely on government aid. Makes lots of sense.

[(The Original) Francis]

Actually, since the vast majority of State government dollars go toward salaries, and since (I'll bet) there's a strong correlation between GDP and cost of living, having the state budget run in parallel with state GDP makes a lot of sense to me.

After all, we do want (at least, I do) our government employees to be competent. Keeping some kind of relationship between GDP and budget allows the State to continue to pay proportionately the same salary.

[GoodOleBoy]

If I note a fact that I think might be relevant to my point regarding economic conditions and it also involves a controversial social issue, Phil always likes to put the social issue up front. First, my wife is Latino, but legally in the US and naturalized, and I don't think she would support the notion that I discriminate based on skin color. So please put that to rest.

When I said there were a lot of Mexicans in California they would be there illegally, otherwise I would call them Americans, even when it may be their intent to return to Mexico someday. (And there are likely a number of Mexicans in California legally as well). A Mexican is someone who is a citizen of Mexico and has not established himself or herself legally as a resident in another jurisdiction. My belief that this is a negative for the state is based on the fact that they are generally in the lower economic quartiles and these are the people affected first and foremost by economic downturns. Someone stated that, in fact, immigrants pay taxes that more than cover provided state services. This may be true in normal economic conditions, but probably not in a major recession.

I don't know how a comparison to Texas got into the discussion since population of Hispanic descent is perhaps the only variable where significant similarities are found. The state economic condition is certainly not one.

[d'd'd'dave]

//Sure, a decent rate of pay is something that wouldn't actually help citizens. Best to pay them as little as possible so they have to rely on government aid. Makes lots of sense.//

This seems like fuzzy thinking to me. Suppose a bridge would help the citizens. Having the bridge is the help. Overpaying for the bridge is not the help.

Gary, to call 'Prevailing Wage' a decent rate of pay is an understatement. It is generally about 20% higher than the average pay for similar work in the area. To suggest that someone not earning prevailing wage would have to 'rely on government aid' is grossly misleading. The government aid in this equation is the patronage given to unions by way of 'prevailing wage' laws which enables them to bid competitively thereby. But it is NOT REALLY competitive. It is an overpayment. It is a corrupt practice that has been institutionalized by law.

[Phil]

If I note a fact that I think might be relevant to my point regarding economic conditions and it also involves a controversial social issue, Phil always likes to put the social issue up front.

I do? Cite, please.

[Gary Farber]

"My belief that this is a negative for the state is based on the fact that they are generally in the lower economic quartiles and these are the people affected first and foremost by economic downturns."

And therefore they are a negative for the state why? You left that part out.

"Someone stated that, in fact, immigrants pay taxes that more than cover provided state services. This may be true in normal economic conditions, but probably not in a major recession."

This is a point of fact: what's your cite to support your claim that -- for unstated reasons -- it's "probably not [true] in a major recession"?

Illegal immigrants can't collect "welfare" benefits of any kind: so how would a recession change the fact that they overwhelmingly pay more in taxes than they in any way cost the state?

Please show your work with cites. Thanks.

"It is a corrupt practice that has been institutionalized by law."

I don't see any benefit in arguing about this; I support workers getting a decent wage, and unions being generally -- not in every single case, of course -- an important and praiseworthy way for them to achieve that; you think it's "corrupt"; these are both subjective opinions, not matters of fact, so we have no objective grounds to argue upon, so we'll have to agree to disagree. (Well, I suppose you don't have to agree to that, but I'll suggest it.)

[GoodOleBoy]

Phil,

Suffice to say your interjection of Texas was not relevant to a discussion of California.

[Gary Farber]

Illegal Immigrants Are Bolstering Social Security With Billions.

[...] As the debate over Social Security heats up, the estimated seven million or so illegal immigrant workers in the United States are now providing the system with a subsidy of as much as $7 billion a year.

Another number:

[...] The IRS created a nine-digit Individual Tax Identification Number in 1996 for foreigners who don’t have Social Security numbers but need to file taxes in the U.S. But it is increasingly used by undocumented workers to file taxes, apply for credit, get bank accounts or even buy a home.

The IRS issued 1.5 million ITINs in 2006 — a 30 percent increase from the previous year. All told, the tax liability of ITIN filers between 1996 and 2003 was $50 billion. The agency has no way to track how many were immigrants, but it’s widely believed most people using ITINS are in the United States illegally.

One number hints at the number of illegal immigrants having income taxes deducted from their paychecks.

In 2004, the IRS got 7.9 million W-2s with names that didn’t match a Social Security Number. More than half were from California, Texas, Florida and Illinois, states with large immigrant populations, leading experts to believe they likely represent the wages of illegal immigrants. Even immigrants who use ITINs to file taxes are forced to make up a Social Security Number when they get a job.

[Gary Farber]

"Suffice to say your interjection of Texas was not relevant to a discussion of California."

Suffice to say your interjection of Mexicans was not relevant to a discussion of California.

If you have some cites to demonstrate otherwise, do please provide them.

[J. Michael Neal]

After all, we do want (at least, I do) our government employees to be competent. Keeping some kind of relationship between GDP and budget allows the State to continue to pay proportionately the same salary.

This is another good point. I'm trying to find a job in the accounting industry. The IRS pays, at best, about 2/3 the starting salary of the accounting firms that are recruiting on campus. There is no way that the government will get any of the best students. They will always be making do with the second stringers.

[efgoldman]

Re Medicaid
There's no disagreement that it has been a budget-buster for states. I think I'm safe in saying that even without cites.

The question is: what's a realistic alternative?

Do we want to go all Dickens, and let poor people die in the streets? (Yeah, some hyperbole, but not entirely).
Do we just let the ERs handle what they can, and the more compassionate (or usually, more public and urban) ones bankrupt themselves? As stated upthread, ERs are closing like mad in CA.
Or as a stopgap, while some kind of better system is cobbled together, do we increase the federal share to take the pressure off state governments (and NOT just CA, not by a longshot).

I know what I vote for, and most of the commenters here, I'm sure.

[The Crafty Trilobite]

Do we want to go all Dickens, and let poor people die in the streets? (Yeah, some hyperbole, but not entirely).

While I was growing up in New York, the state stopped paying for the indefinite housing of the mentally very ill at public expense. The new rule, embraced by the newfangled HMOs that were going to make medicine so much more efficient (remember that?) was that unless you were a clear and present danger to yourself or others, or unable to perform the most basic life functions like eating, out you go.

Overnight, the streets were full of deranged homeless people. Because just being able to get a fork into your mouth reliably turns out not to be a good resume item. A lot of them died of exposure each winter, others stumbled into subway tracks (or were pushed), and so forth.

So no, not much exaggeration there at all.

[mythago]

Could somebody please ban GoodOleBoy until he gets his trolling back up to par?

[Michael Haley]

Boy, I live here and right now I think the Republicans are right. California has the fourth highest taxes of any state and even in good times we run big deficits. They just will not stop spending more money than they have.

The state employee unions are running the state budget, the papers including the Times are not even mentioning that but that is the biggest story here.

Retirees from safety are getting 90% of their highest salaries for life as pensions and it is ridiculous. Salaries for employees here have skyrocketed over the last eight years.

Everyone thinks they can get rich off the government here, and the shit has hit the wall on that.

I am glad the Republicans are holding out, they need structural reform. Raising taxes even higher than the Democrats are proposing, and they are proposing over 9% sales taxes in most places, people who make 44K a year in income pay 9.4% of it already in income taxes and they want to raise that, so thousands of government workers can make 200k a year then retire at 50 and get 90% of it for not working for another 25 years with cola's? forget it.

[Hartmut]

Texas was brought up by McKinneytexas as a counterexample to California (more 'businessfriendly'), so adding further points of comparison ('Mexicans') was natural (that neither point actually flies is another matter).

[Gary Farber]

"Could somebody please ban GoodOleBoy until he gets his trolling back up to par?"

I haven't observed GoodOleBoy to have broken any posting rules, so there wouldn't seem to be any grounds or reason to suggest banning him.

[Anarch]

While I was growing up in New York, the state stopped paying for the indefinite housing of the mentally very ill at public expense.

The same happened in Wisconsin, at least at the local asylum. The result was the same, too.

[russell]

Everything. Cut every line item by 30%. Free 30% of the prisoners. Layoff enough state employees to reduce payroll and benefits by 30%.

Voila! Balanced budget.

Where do the 30% of prisoners go? Where do they live? What do they do for a living?

How do the laid off state employees pay their bills? Can they find other jobs? Will they be able to stay in the state?

Clearly, not your problem.

Could somebody please ban GoodOleBoy until he gets his trolling back up to par?

Maybe it's just my two cents here, but as far as I can tell GoodOleBoy is definitely not a troll.

[KCinDC]

people who make 44K a year in income pay 9.4% of it already in income taxes

That appears to be the marginal rate, so while it may be high, it's not true that those people are paying 9.4% of their income in California income taxes. The correct number is $1,827/$44,000 = 4.1%.

And that's on taxable income of $44k, so total income would be higher, and the percentage of that would be lower. Assuming a single person with a standard exemption of $99 and a standard deduction of $3,692, the income before adjustments would be $47,791. Assuming FICA of 7.65% was taken off the top (ignoring the employer's contribution), the actual income would be $51,750. So the percentage going to California income tax is actually 3.5% -- quite different from 9.4%.

[Karen]

"One of the issues that causes real problems in government spending is that unlike normal budgets, people act as if theoretically justifying individual expenditures is enough."

Please name three such people. Anyone here? Any specific political leaders? Who?

I'll name a whole lot in aggregate: the California voters who tend to approve bond measures that sound like good ideas, without considering that paying off those bonds adds to the state debt. We also tend to vote for ballot propositions (such as the mandated K-12 budget percentage) that hamstring the legislature when they try to manage spending. We're generally responsive to theoretically good ideas, and we don't tend to worry much about the ramifications of them. Thus, we've made our own contribution to this mess.

[Sock Puppet of the Great Satan]

"Hasn't California been on the brink for more than a decade due to profligate spending, mostly by Democrats?"

Let's see:

Ratio of State Expenditures/Gross State Product:

1963-1964: 4.4%
1967-1968: 5.0%
1975-1976: 6.3%
1990-1991: 6.2%
1998-1999: 6.7%
2006-2007: 6.8%

(ratios based on numbers from the 2008 California Statistical Abstract. Numbers in that source only went to 2006-2007).

So, the share of the economy the State of California consumed rose somewhat under Pat Brown, was stable from 1975 (Jerry Brown), rose markedly under Pete Wilson, but has been pretty stable since then. The issue is not enough revenue, not the state gobbling up more.

But whoever was in the Governor's office between 1967 and 1975 sure expanded the state's share of the economy. I wonder what tax and spend liberal that was?

[BobN]

"I know of at least one Fortune 500 company that moved recently from California to Texas--does anyone want to hazard a guess why?"

Oh, there are lots of reasons, I'm sure. And you'll become quite familiar with them in, say, fifteen years, when that company leaves Texas and moves to Idaho, leaving Texas when the inevitable financial morass caused by spending public funds to support corporate America without taxing corporate America at commensurate rates bankrupts your state.

[d'd'd'dave]

//Clearly, not your problem.//

And why should it be?

[Hogan]

No taxes, no services, minimal government (except for law enforcement)

And no unions.

The model, it should be noted, that has made Alabama and Mississippi the economic engines of the world.

[GoodOleBoy]

I glad to hear the world has an economic engine somewhere!

[liberal japonicus]

And it's safe, cause Mississippi is certainly the last place anyone would look for it.

[russell]

And why should it be?

They're you're neighbors and your fellow countrymen. That will either do it for you, or it won't.

Your suggestion of an across-the-board 30% reduction in CA state services and budget is kind of cute, and there's a certain beauty in it's brutal simplicity. But it fails to answer the question "What happens then?"

"That's not my problem" is not a useful answer. It's not useful because the actual answer is "Then the wheels come off".

I don't know where you live, dave, but if you live in CA, when the wheels come off, it will be your problem.

I glad to hear the world has an economic engine somewhere!

Tonight's pop quiz: which US state has the most entrepreneurial economy?

[d'd'd'dave]

// But it fails to answer the question "What happens then?"//

// when the wheels come off, it will be your problem.//

Yes, it will be my problem. Why should we put it off? Waiting does not make it better.

//They're you're neighbors and your fellow countrymen.//

All the more reason to put them on a sustainable path as soon as possible. Do you lie to family and friends or do you help them see things the way they are? Turn around and head the right direction as soon as you discover you're off.

[russell]

Turn around and head the right direction as soon as you discover you're off.

Laudable.

It's the "tough love" theory of political economy. It's not without merit.

What I'd like to suggest is that an across the board cut of 30% of state revenue and services, done all at one go, with no further planning or mitigation, will be a freaking disaster.

My guess is that you understand that, but maybe I'm wrong.

Conservatives frequently criticize liberals for thinking that throwing money at problems will solve them.

I criticize conservatives for thinking that taking money away will do the same.

It's an equally simple-minded and damaging analysis.

[d'd'd'dave]

//an across the board cut of 30% of state revenue and services, done all at one go, with no further planning or mitigation, will be a freaking disaster.//

Yes. But that is not what would happen. The legislature would come back the next week - sober - and figure out how to divide the remaining 70% between essential and non-essential functions.

//It's an equally simple-minded and damaging analysis.//

Simple-minded or just simple.

When the checkbook is empty you cannot buy anything - even essential things.

//with no further planning or mitigation,//

We in California have had years of warning on this. There's been a budget crisis every year since before Schwarzneggar. Where is the mark on the calendar that says 'start planning and mitigating now? It was years ago. Suppose we say it is today. What will you say next year when we're in the same place?

I live here. I watch it every year.