The White House has refrained from pledging federal aid to California, after politicians in the state missed a deadline to agree on moves towards a balanced budget. Legislators in the western US state failed to reach consensus on balancing the budget by the start of its fiscal year on Wednesday, meaning the state will now probably suspend payments of its bills. "We continue to watch the situation and we'll see as it develops," Robert Gibbs, the White House spokesman, said after the news emerged
The White House has refrained from pledging federal aid to California, after politicians in the state missed a deadline to agree on moves towards a balanced budget.
Legislators in the western US state failed to reach consensus on balancing the budget by the start of its fiscal year on Wednesday, meaning the state will now probably suspend payments of its bills.
"We continue to watch the situation and we'll see as it develops," Robert Gibbs, the White House spokesman, said after the news emerged
It's going to take:
Two paths:
The underlying problem is: California is badly organized.
The spin-off from that is: California is badly managed.
These, plus Term Limits, have created a situation where political power is in the hands of people unresponsive to democratic accountability. The real "rulers" of California are the leaders of the various political parties, voting organizations, and the wealthy funders of both. California government responds to these entities not the people. This leads to the situation where Tax Policy, for instance, is controlled by those who control the actual, instead of the formal, means of power within the state.
Secondly, California government does not completely control Tax ... or any other Public Policy. The US Federal government - Congress - has been passing unfunded mandates, as they are called, which requires expenditures to achieve certain goals or ends but without Federal monies.
During times of inflation (see The Long Cycle by Fischer) the wealthy are able to maintain and extend their financial position by imposing the tax burden(s) on the poor and middle class.
Thus, what needs to happen in California is a complete overhaul of Public Policy to a 'reasonable' alternative which may, or may not, create a tax increase for the majority of the citizens but which certainly would lead to a tax increase on the upper 2% as well as businesses.
The GOP is absolutely controlled by corporate shills and anti-tax zealots. (One of the "special interests" mentioned above.) And has a blocking minority in the state legislature.
The wealthy, having de-facto control of the state government necessarily control Tax policy and so can and have fobbed-off tax increases onto the poor and middle class to the point these groups just can't afford to divert any more of their income to taxes. The GOP won't raise taxes on wealth.
Result: Public Policy impasse and state insolvency.
Term Limits [...] have created a situation where political power is in the hands of people unresponsive to democratic accountability
The question is: what then? Is there any precedent for state insolvency in the U.S.?
John Chiang, state controller, could now issue "IOU"-style notes by Thursday to the state's vendors, local agencies overseeing health programmes and recipients of state aid - including the elderly, the disabled and college students. It is the first time in 17 years that the state's government will have to utilise such a measure.
It is the first time in 17 years that the state's government will have to utilise such a measure.
NYT.com: California May Be Forced to Issue I.O.U.'s (June 24, 2009)
If the i.o.u.'s are issued as threatened, it would be the first time since 1992 -- when Gov. Pete Wilson paid roughly 100,000 state employees with them -- that the warrants were used to hold over those to whom the state owed money. Before that budget crisis, California last issued the warrants during the Depression. ... Before even broaching the tax increase -- which Republican legislators said they would not accept and Gov. Arnold Schwarzenegger, a Republican, vowed to veto -- Democrats failed to get enough Republican votes in the Assembly or Senate for the first of 20 proposed budget bills, which contained $11 billion in cuts. After the vote, the Senate president, Darrell Steinberg, dismissed lawmakers until Thursday. ... In 1992, Governor Wilson, a Republican, issued the i.o.u.'s to state workers; the workers immediately brought a lawsuit, contending that the state had violated the federal Fair Labor Standards Act. A federal judge approved a $558 million settlement, and some workers received additional vacation time.
...
Before even broaching the tax increase -- which Republican legislators said they would not accept and Gov. Arnold Schwarzenegger, a Republican, vowed to veto -- Democrats failed to get enough Republican votes in the Assembly or Senate for the first of 20 proposed budget bills, which contained $11 billion in cuts. After the vote, the Senate president, Darrell Steinberg, dismissed lawmakers until Thursday.
In 1992, Governor Wilson, a Republican, issued the i.o.u.'s to state workers; the workers immediately brought a lawsuit, contending that the state had violated the federal Fair Labor Standards Act. A federal judge approved a $558 million settlement, and some workers received additional vacation time.
It may take the spectacle of watching "the beast" starve to provide the motivation to undo this. Nursing homes may close, dumping tens of thousands of frail elderly back onto family, if any. Welfare assistance will evaporate during the worst employment market since the '30s. Schools are taking a big hit already--there is no summer school pretty much state wide, and educational requirements are being "upgraded" to offer a means of eliminating teachers, class sizes are being increased, etc.
The problem is that all of the initiative driven restrictions on state government's ability to tax has left the state heavily reliant on volatile revenue sources and this is highly pro-cyclical. This current crisis MIGHT provide an opportunity to undo all of this, but I haven't seen anyone step up to publicly explain all of this in an intelligible manner. That would be like Obama taking on Wall Street. So I will believe in sensible reform of state revenue when I see it.
My own view is that the best prospect for change is via a new Progressive Party. It has been said that the times call forth the man. May it be so. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Well, the chickens & roosting.
When granny comes marching home they will find out just how much it costs to keep the old biddy alive. When their kids can't get a public education they will find out how much it costs to private/home school the little brat ...
and so on and so forth.
Personally, I find it all highly gratifying amusing.
A hundred thousand Randian crazies will continue to hold the state hostage because they're either living in the proverbial parental basement, or too rich to notice. Either way they won't be personally affected.
The problem is the canyon-sized disconnect between egotism and consequences among the other voters on the centre and the right. If no one explains how one leads to the other, they still won't understand.
The Right has funders willing to pocketbook the process. The Left doesn't. It's really quite that simple.
The most dramatic impact was on local government as Prop 13 capped tax rates at 1%--the ultimate anti-Georgist measure. Then, IIRCC, SCOTUS rulings about equality of educational funding between rich and poor districts led to most funding for school districts being shifted to the state. The two thirds majority requirement for tax increases has led to the Cave Men blocking any tax increases except the most regressive, such as sales tax, which are also the most pro-cyclical, dropping rapidly during recessions. The Gann initiative required that, during boom times, money could not be spent on capital improvements, as spending was limited to a formula based on population growth, with adjustments for shifts of responsibility among governmental agencies. Doing anything other than returning money to taxpayers required legislative action, which, again, was blocked by the Cave Men. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
This is not at all like the (near) New York City bankruptcy back in the 1970s, except in one respect: No one thinks they will be affected.
To go off topic: That was an interesting time. I was living on Long Island, where not so much as a single donut exists without passing through New York to get there, yet Long Islanders were unanimous in their opinion that New York should be allowed to go down. Well, we never found out how that would have played out. But that was then, and in those days the entire country was not insolvent.
Post Katrina, it all gets more interesting. CA may yet be the first state of the Union to become a "failed" "state". The Fates are kind.
