Friday, July 3, 2009
Bending the California Curve
Bending the California Curve
Friday, July 03, 2009
By the time you read this, the Obama administration will, no doubt, have bailed out the state of California. How can we be sure? Because it announced, on June 16, that it wouldn’t bail out California.
As National Review blogger Jim Geraghty often writes, “All statements from Barack Obama come with an expiration date. All of them.” California, like General (Government) Motors, AIG and Chrysler, will no doubt be labeled “too big to fail” and bailed out. If not by now, then some time in the weeks ahead.
That’s unfortunate, because there’s a simple solution to the Golden State’s difficulty.
First, the problem: The state’s government has spent too much and run up a massive deficit. It’s raised income taxes in an attempt to cover the shortfall. But that simply drives productive taxpayers to other states -- even as unproductive non-taxpayers are drawn to the state to take advantage of its lavish welfare benefits.
That downward spiral has left California facing a $24 billion deficit for the fiscal year that starts July 1. Hence the pleas for a federal bailout. “I can’t speak for the president, but when you’ve got the 8th biggest economy in the world sitting as one of your 50 states, it’s hard to see how the country recovers if that state does not,” Democratic Rep. Zoe Lofgren told reporters. As if Washington -- now borrowing 50 cents of every dollar it spends -- is really in better fiscal shape.
So how can California possibly survive? Try going back in time, all the way to the year 2000.
Those days are difficult to remember now. The Y2K computer scare had just passed. American companies and the federal government spent billions of dollars rewriting code to keep their computers from crashing on 1/1/2000.
And nothing happened. No nuclear missiles launched. No bank accounts were erased. By noon it was clear the most exciting event that New Years Day would be the Rose Bowl. CNN, which had planned to cover the carnage live for 100 straight hours, sent its anchors home and went back to prerecorded fare.
California’s total budget for the fiscal year that started in July 2000 was $96 billion. So the simple solution is for California to pull out the year 2000 budget, blow the dust off it, and approve it, word for word, as the state’s 2009 budget.
This swiftly solves plenty of problems. For one thing, it wipes out the deficit, since the state plans to take in $97 billion in revenue the next year. Instant budget surplus, no bailout required. For another thing, it should silence the critics. The year 2000, after all, was a good one in the Golden State. Unemployment was low. Los Angeles hosted the Democratic convention. The state went overwhelmingly for Gore in the fall. How could Californians possibly complain about going back to the budget that delivered all that good stuff?
It’s virtually impossible to cut a budget bit by bit. Republican Gov. Arnold Schwarzenegger is trying, but meeting the usual resistance. As The New York Times wrote in a news story -- not an editorial -- on May 30, “The cuts Mr. Schwarzenegger has proposed to make up the difference, if enacted by the Legislature, would turn California into a place that in some ways would be unrecognizable in modern America: poor children would have no health insurance, prisoners would be released by the thousands and state parks would be closed.”
Unrecognizable? Well, we recognized it back in the glory days of 2000. People weren’t dying in the streets then. Surely that year’s budget would keep them alive and well even today. For his part, the governator warns, “After June 15th, every day of inaction jeopardizes our state’s solvency and our ability to pay schools and teachers and to keep hospitals and ERs open,” announced on June 12.
But that’s the beauty of passing the 2000 budget again. It provided for schools. And teachers. And hospitals. And ERs. It could do so again.
The trend in government spending is ever upward. This year, California plans to spend $131 billion, a massive increase in less than a decade. During those same years the Bush administration jacked up federal spending year after year, even creating a new Medicare entitlement program.
“The reckless fiscal policies of the past have left us in a very deep hole,” President Obama said recently. “And digging our way out of it will take time, patience and some tough choices.” Yet his first action was to dig the hole deeper by passing a $787 billion spending package. The Washington Post has a handy graphic which shows that while Bush left a $400 billion deficit, Obama will triple that this year, with more red ink as far as the experts can project.
The only solution is to go back to the good old days and use Y2K’s budget as a baseline. That’s probably the only way to “bend the curve” of ever-increasing government spending.
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Posted by Brett at 12:56 PM