California, and its largest city, Los Angeles, continue to be embroiled in a political deadlock. Yesterday, Governor Arnold Schwarzenegger released a new executive order requiring state workers to take 3 unpaid days off per month starting in August. State workers were furloughed a total of 46 days when Schwarzenegger issued a similar order in February 2009, which translated to a pay cut of about 14%.
California faces a $19 billion deficit for the fiscal year that began July 1, and Schwarzenegger is demanding pension, tax and spending reforms in the new budget. He said that if the Legislature doesn't give him a budget that meets his expectations, he won't sign it.
It's unclear how long the latest round of furloughs could last, as Schwarzenegger and lawmakers enter the 5th week of the new fiscal year without a balanced budget. Earlier this week, the governor hinted that he might not sign a budget before he leaves office next January unless it includes pension, tax and spending reforms.
State Controller John Chiang has warned that he will start issuing IOUs in August or September if the budget stalemate drags on in the Legislature. Chiang said the cash-saving measure is necessary because the state is projected to run out of cash in October. While thus far IOUs have been honored at face value, it is increasingly likely that recipients may ultimately have to take a substantial discount, if the budget crisis isn't resolved. In the 19th century, when several states had to issues notes, holders lost about half face.
Los Angeles, like many other cities, is struggling with a budget crisis of its own. The situation is so grave that city officials have been involved in tense negotiations with the Department of Water and Power (DWP) over the transfer of funds into the city treasury.
On Tuesday, executives with the DWP issued a sharply worded defense of their decision to withhold $73.5 million from city coffers in the middle of a recent fight over electricity rates, saying they did so to protect the utility's credit rating and its customers.
After a lengthy standoff between the council and DWP over proposed rate increases, City Controller Wendy Greuel reviewed the utility's records and concluded that, contrary to its claim, the utility could have made the promised transfer to the cash-strapped city budget without first being granted the increase. Official with the DWP, in turn, accused Greuel of making misleading statements.
Unlike investor-owned power companies that pay regular dividends to stockholders, the DWP transfers more than $200 million each year to the city's general fund, which pays for police, fire and other basic services. This year, that transfer was broken into two installments — $147 million followed later by $73.5 million.
With so many states, cities and counties in financial trouble, it would seem inevitable that some will be forced to default. It's highly unlikely that California, which has the 8th largest economy in the world, on a stand-alone basis, would be allowed to go under. However, cities have fewer options to plug their budget gaps. If even one major city becomes unable to meet their debt obligations, the spillover into the investor community will be most severe.
And, if cities begin to default with police and fire support becoming extremely understaffed, can civil disobedience be far behind?
Marko's Take
Showing posts with label Arnold Schwarzengger. Show all posts
Showing posts with label Arnold Schwarzengger. Show all posts
Thursday, July 29, 2010
Thursday, May 20, 2010
California Sinking Amid Its Budget Crisis
A popular wives tale in California is that a huge earthquake on the San Andreas fault would cause the Golden State to sink into the Pacific Ocean. It doesn't look like an earthquake will be necessary. California's own budget crisis has the state drowning in an ocean of red ink.
Last Friday, Governor Arnold Schwarzenegger proposed a new budget that would dramatically reduce aid to some of its poorest and neediest citizens.
His $83.4 billion plan would also cap funding for local schools, cut state workers' pay and reduce 60% of state money for local mental health programs. State parks and higher education are among the few areas the proposed budget doesn't impact.
The budget does not raise taxes, but assumes $3.4 billion in help from Washington, or roughly half of what the governor sought earlier this year in order to help close a budget gap now estimated at $19.1 billion. Billions more would be saved through accounting moves and fund shifts.
Elimination of the state's main welfare program called CalWorks, would affect 1.3 million people, of which 1 million are children. The program requires recipients to eventually have jobs and gives families an average $500 a month. Eliminating those payments would save the state $1.6 billion, the administration said. It would also make California the only state not to offer a welfare-to-work program for low-income families with children.
Under the proposed budget, local school funding would be frozen. Education officials claim they are owed a $2.8 billion increase, without which they wouldn't be able to cover scheduled cost-of-living raises and other obligations. Education spending has already been cut back substantially, requiring many districts to lay off teachers which will increase class sizes.
The governor's plan would reduce prison costs by shifting the responsibility for some state inmates to local governments. According to his estimate, the state would save $248 million by sending new low-level felons to local jails instead of to state prisons and by shifting supervision of state juvenile parolees to counties.
Sacramento is also looking to borrow $1.2 billion in gas tax revenue and other transportation-related funds to help balance the budget. Another idea is to raise more than $200 million by installing automated cameras at red-light intersections to ticket speeding drivers.
Schwarzenegger's latest budget proposal is merely a starting point for negotiations that typically stretch well into the summer. His previous attempts to impose more dramatic spending cuts have been opposed primarily by Democrats who reluctantly agreed to substantial cuts last year.
A main source of California's fiscal woes is pension obligations to civil servants, yet Democrats continue to resist substantive reform. "The cost of employee retirement benefits this year is $6.1 billion," said Mr. Schwarzenegger. "That is more than what it would cost to keep [the welfare-to-work program] CalWorks, child care, mental health services and in-home supportive services."
Democrats want the governor to agree to another income tax increase on the rich, even though California currently has one of the highest tax rates in the U.S. Yet, IRS statistics indicate that $10 billion in wealth has been lost from out-migration in the last 5 years.
The ongoing budget stalemate is largely the result of a poorly designed political system. Gerrymandered districts drawn by the legislators themselves, combined with a semi-closed primary election system, have tended to send the most extreme ideologues to Sacramento in the last decade. Voters can correct both flaws when they cast ballots this year.
California is the only state with a requirement that a two-thirds majority vote be achieved for both passage of a budget and an increase in taxes. So, if 51% of voters agree on how to fix the state budget, it still must be approved by two-thirds of each legislative house. That requirement explains the consistent gridlock.
As a result of the ongoing budget squabbles, Schwarzenegger's job approval rating has descended to an all-time low of only 24% among likely voters. The Legislature's approval is even lower, 11%, placing them below Attila The Hun.
Relief will likely come from the 2010 elections. Any shake-up in the political mix will require a new set of faces in Sacramento and a new governor. Unfortunately, given the rapidly deteriorating condition of California and the rest of world's economies, it may prove too little-too late.
Marko's Take
For new readers with a political bent, we are releasing video blogs on You Tube. Topics addressed include "Peak Oil", "The Federal Reserve", "Social Security" and "Personal Income Taxes". More videos to follow.
They can be accessed by clicking here http://www.youtube.com/markostaketv.
Last Friday, Governor Arnold Schwarzenegger proposed a new budget that would dramatically reduce aid to some of its poorest and neediest citizens.
His $83.4 billion plan would also cap funding for local schools, cut state workers' pay and reduce 60% of state money for local mental health programs. State parks and higher education are among the few areas the proposed budget doesn't impact.
The budget does not raise taxes, but assumes $3.4 billion in help from Washington, or roughly half of what the governor sought earlier this year in order to help close a budget gap now estimated at $19.1 billion. Billions more would be saved through accounting moves and fund shifts.
Elimination of the state's main welfare program called CalWorks, would affect 1.3 million people, of which 1 million are children. The program requires recipients to eventually have jobs and gives families an average $500 a month. Eliminating those payments would save the state $1.6 billion, the administration said. It would also make California the only state not to offer a welfare-to-work program for low-income families with children.
Under the proposed budget, local school funding would be frozen. Education officials claim they are owed a $2.8 billion increase, without which they wouldn't be able to cover scheduled cost-of-living raises and other obligations. Education spending has already been cut back substantially, requiring many districts to lay off teachers which will increase class sizes.
The governor's plan would reduce prison costs by shifting the responsibility for some state inmates to local governments. According to his estimate, the state would save $248 million by sending new low-level felons to local jails instead of to state prisons and by shifting supervision of state juvenile parolees to counties.
Sacramento is also looking to borrow $1.2 billion in gas tax revenue and other transportation-related funds to help balance the budget. Another idea is to raise more than $200 million by installing automated cameras at red-light intersections to ticket speeding drivers.
Schwarzenegger's latest budget proposal is merely a starting point for negotiations that typically stretch well into the summer. His previous attempts to impose more dramatic spending cuts have been opposed primarily by Democrats who reluctantly agreed to substantial cuts last year.
A main source of California's fiscal woes is pension obligations to civil servants, yet Democrats continue to resist substantive reform. "The cost of employee retirement benefits this year is $6.1 billion," said Mr. Schwarzenegger. "That is more than what it would cost to keep [the welfare-to-work program] CalWorks, child care, mental health services and in-home supportive services."
Democrats want the governor to agree to another income tax increase on the rich, even though California currently has one of the highest tax rates in the U.S. Yet, IRS statistics indicate that $10 billion in wealth has been lost from out-migration in the last 5 years.
The ongoing budget stalemate is largely the result of a poorly designed political system. Gerrymandered districts drawn by the legislators themselves, combined with a semi-closed primary election system, have tended to send the most extreme ideologues to Sacramento in the last decade. Voters can correct both flaws when they cast ballots this year.
California is the only state with a requirement that a two-thirds majority vote be achieved for both passage of a budget and an increase in taxes. So, if 51% of voters agree on how to fix the state budget, it still must be approved by two-thirds of each legislative house. That requirement explains the consistent gridlock.
As a result of the ongoing budget squabbles, Schwarzenegger's job approval rating has descended to an all-time low of only 24% among likely voters. The Legislature's approval is even lower, 11%, placing them below Attila The Hun.
Relief will likely come from the 2010 elections. Any shake-up in the political mix will require a new set of faces in Sacramento and a new governor. Unfortunately, given the rapidly deteriorating condition of California and the rest of world's economies, it may prove too little-too late.
Marko's Take
For new readers with a political bent, we are releasing video blogs on You Tube. Topics addressed include "Peak Oil", "The Federal Reserve", "Social Security" and "Personal Income Taxes". More videos to follow.
They can be accessed by clicking here http://www.youtube.com/markostaketv.
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