Monday, May 2, 2011
Slouching Towards Insolvency (The California Way)
Slouching Towards Insolvency (The California Way)
By Austin Hill
The U.S. Federal Government is on a collision course of debt and deficits.
And California may be the best example yet of “the feds on steroids.”
As state governments continue to feel the recession’s impact and are staring-down daunting fiscal challenges, the wisdom of the American people has been prevailing in some of the most unlikely places. In states as diverse as Wisconsin, Idaho, New Jersey, and Ohio, Governors and legislatures have stood-up to the ever-expanding demands of government employee unions, reigned-in employee compensation growth, and have cut state spending. Even in liberal Massachusetts the Democrat-led House of Representatives voted last week to limit the powers of their state government employees’ unions.
But the wisdom hasn’t yet made it all the way out to the Left Coast. With a budget deficit of somewhere between $10 and $15 billion – a deficit that is expected to swell to about $25 billion by the middle of 2012- California politicians have continued their self-serving spending sprees of the past many years, while at the same time legislating itself further and further away from any semblance of being “business friendly.”
Like it or not, California is both a global economic epicenter, and a spectacular place in the world. It is home to the highest mountain in the contiguous forty-eight states (Mount Whitney), the lowest valley (Death Valley), Facebook, “Surf City, U.S.A.”(Huntington Beach), Apple Computers, The World Champion San Francisco Giants, eBay, Legoland, Cisco Systems, “Hollywood,” three U.S. Presidents (Richard Nixon by birth, and Herbert Hoover and Ronald Reagan by “adoption”), and Mitsubishi Motors of North America.
This is to say that California can be and should be a place of robust economic opportunity across multiple sectors. But politicians have a stranglehold on the state, and consequently, businesses and capital are leaving, while productivity is slumping.
After Governor Jerry Brown took office in January, he noted that California had a history of “kickin’ the can down the road” with its budget woes, and that Californians had been treated with “evasions,” “accounting gimmicks,” and “smoke and mirror” tricks on state finances. At his first State of the State address, he announced that his plan to solve California’s dreadful fiscal problems would involve both cuts in government spending, and – if California voters approved – tax increases.
This seemed very reasonable. Very practical. Very “bi-partisan,” if you will. And indeed Governor Brown has brought about some cuts in government spending, in part by eliminating taxpayer funded mobile telephone and vehicle privileges for government workers (most of us in the private sector don’t get “free” mobile telephones and cars from our employer, but this had apparently become standard operating procedure for many California government employees).
But the pathway to a tax increase has not been so smooth. Allowing California voters the opportunity to vote themselves a tax increase requires the state Assembly and Senate to legislate a special election, and Brown has insisted that the passage of special election legislation must have at least some Republican legislative votes.
Thus far, however, Republican legislators have refused to cooperate. Government employee unions are now becoming even more fierce with their demands that Brown and the legislature just simply “legislate tax increases” without a public vote, but Governor Brown has remained consistent with his pledge that “the people” must decide on tax increases, and that Republican legislators must provide political “buy-in.”
So what do California leaders do when the deficit is exploding and tax hikes are at a stand-still? In Governor Brown’s case, he has committed to spending millions of more non-existent tax dollars on unionized government employees. For example, earlier in April Brown approved a new contract for the California Prison Guard’s union, which will allow guards to accrue unlimited numbers of un-used paid vacation days each year. When a guard retires, the un-used vacation time can now be “cashed-in” at the guard’s highest salary rate- a sweet pay-off from Governor Brown to a labor union that spent nearly $2 million on his campaign last year.
The precise cost to the taxpayer for this political quid-pro-quo is impossible to know right now. But state government estimates suggest that Brown just saddled Californians with an additional $600 million in pension liabilities.
As for California legislators, they’ve been working on bills that would ban the sale of caffeinated beer, raises taxes on “sugary soda drinks,” require all public school children to be taught “Gay History,” and mandate the establishment of an official California “Parks Make Life Better” month. There have even been efforts at a bill that would require the use of a “fitted sheet, instead of a flat sheet, as the bottom sheet on all beds within a California lodging establishment…”
Indeed, the wisdom of America is breaking-out all across the country -except at the White House, the U.S. Senate, and across that vast region known as our 31st state.
To read another article by Austin Hill, click here.
To read another article on a related subject, click here.
Posted by Brett at 11:13 AM