California Budget Deficit? What California Budget Deficit?

The Gubernator announced his last May Revise  this past Friday.  It was greeted with the usual rending of garments and gnashing of teeth now a customary part of the California budget blowout.   To close an almost $20 billion deficit His Arnoldness is now proposing freezes on local education, more slashing of government workers’ numbers and pay and huge cuts in social welfare and state medical care, including the complete termination of Calworks. Take that , you million mooching kids living off of state handouts.

But what are you going to do when the state is running almost 25% in the red?

And Our Last Action-Hero Governor can’t even depend on a last minute uber-dramatic rescue from Obi Wan Obama.  Washington’s response to  the Governor’s January request for $7 billion in reimbursements for Federal programs?  Drop dead.  Washington’s likely response to his new $3.4 billion beg?  Ditto.

Our Term(Limited)inator in Chief shouldn’t be  asking for a paltry $3.4 billion, anyway.  If the Feds have the audacity to insult the Golden State with such brass tribute he should throw it back in their faces.

No, what  one of the most successful businessmen in Hollywood History should demand is $70 billion.  That’s BILLION, with a big “B”. $70 billion is how much more California pays the Feds then the Feds give back in services and spending.

Californians get back about 78¢ for every dollar collected here by the Feds That means for the $313 billion  per year Californians pay the Federal government the Feds put back around $224 billion  in services and payments.  Which leaves California with that magic $70 billion deficit vis-à-vis  D.C.

Rather than running a $20 billion dollar budget deficit  in terms of revenues and spending  California actually has a $50 billion surplus. That is, if the Golden State got to keep all the gold it ships off to Washington.  Who then ships it off Red States like Mississippi, Alabama and all the others who get more back than they put in to the Federal slot machine.

I heard a commentator on the Dennis Prager show today compare Germany bailing out Greece to Texas bailing out  California .  Sorry but that’s the wrong comparison.  Texas gets back 94$ per dollar it sends.  Alaska gets back  a whopping $1.84.

So it’s Germany is to Greece as California is to Alaska, SAT fans.

Note to Feds: pay us our $70 billion, please.  We’ll take it in gold, if possible.

Note to Sarah Palin:  Shuttup already.  Your state takes more federal money per dollar sent than any other and you have the nerve to cry at your own Tea Party?  How about  you send us Californians—Real Americans who pay a lot more in shouldering the burden of being Americans than you and your mooching Alaskans—the $3.6 billion more you get back from that hated American government than you send in?

Consider it a down payment on monies owed California by a grateful nation.

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10 Responses to “California Budget Deficit? What California Budget Deficit?”

  1. Erik Says:

    Most, wingnuts excepted, know the dirty little secret about red states’ disproportionate receipts of Federal largesse. In the end this is a rational result of the lack of proportional representation in the Senate which allows jerkwater states like Wyoming to cast such a long red shadow in the senate…

    And we all know the Senate is the place where all sensible legislation goes to die, especially with a rock solid 40% majority for the Republican Party..

  2. Bill Finzel Says:

    You need to make 3 corrections to the 6th paragraph, wherein you use million instead of billion.
    .
    btw: the imbalance in taxes vs services/etc cannot be expected to be -ZERO-. Certainly the difference ought to be lessened, but some variation in the balance is bound to happen.Of course, I realize that the significance in rhetorical value of your article would be diluted if you were to use: “pay us most of our $70 billion, please.”

  3. Carl Luna Says:

    Bill,

    Thanks for the headsup of the billions/millions. But what’s a few millions/billions mix up in the age of derivative, oil spills and budget deficits? And you are right, no state should expect to always get back exactly what it puts in. California, however, seems to be the pocket that Red State America loves to pick.

    And Erik:

    Bingo. The Senate is the weak link in our constitutional design. At some point a system in which California, with an almost 80:1 population advantage over Wyoming gets the same representation as Wyoming needs be reconsidered. Except it won’t be because the 40 states with populations smaller than Los Angeles county like things the way they are. Which means we are heading, as a nation, for a constitutional crisis sometime in this century that may well test the viability of the Union. Be nice to avoid that.

  4. ljdiver Says:

    MAY 12, 2010

    By STEVEN GREENHUT

    “One cannot be both a progressive and be opposed to pension reform,” argued Gov. Arnold Schwarzenegger’s top pension advisor, David Crane, during a pension-reform hearing on Monday. “The math is irrefutable that the losers from excessive and unfunded pensions are precisely the programs progressive Democrats tend to applaud. Those programs are being driven out of existence by rising pension costs.”

    Yet it’s clear – from their votes and posturing during pension-related debates – that the progressive Democrats who run California’s Legislature and who controlled the committee hearing have no intention of doing anything to anger the state’s powerful public employee unions. Union leaders and activists filled the committee room to speak out against SB919, which would increase retirement ages and decrease defined pension benefits for newly hired state employees. The new levels would still be far more generous than pension plans in the private sector.

    Thus I am left with this sad but reasonable conclusion: There is absolutely no chance that California’s Legislature will embrace even modest reforms to its public employee pension system, which has a pension liability that is estimated by some sources as high as $500 billion.

    My conclusion is not born purely out of pessimism, even though I admit to having a generous dose of it based on my dozen years of watching public employee unions have their way with local, county and state governments. This simply is reality – one that has become more obvious after the hearing. The committee didn’t even get a quorum to take a vote. Indeed, Republican Sen. Dave Cox, R-Fair Oaks, at the end of the meeting, stated the obvious: this bill will never get out of committee and the only hope for reform is in the initiative process.

    Because unions have the ability to raise political funds from member dues and have armies of foot soldiers to engage in campaign warfare, any sort of statewide initiative reform is a tough road as well. Two recent union-related initiative campaigns – a Paycheck Protection measure to reduce unions’ ability to collect dues for political purposes, and a second-tier pension reform plan – have died on the vine, as they lacked sufficient funding and signatures to make it to the ballot. The backer of the pension-reform measure has publicly accused the leading Republican for governor, Meg Whitman, of torpedoing the measure by leading on reform supporters with promises of financial aid and then dropping such support late in the game, thus leaving activists without time and resources to qualify the measure for the ballot. On the Democratic side, former Gov. Jerry Brown is seeking a comeback and has been actively courting union members and defending his ‘70s-era decision giving public employees the right to join unions. There’s not much hope that the political climate will change when a new governor takes office.

    This doesn’t leave California with many options. While union activists gained the most attention with their testimony against the pension reform bill on Monday, Schwarzenegger advisor Crane gave a stunning and detailed warning about California’s pension system and about the California Public Employees’ Retirement System, the nation’s largest pension fund and a big player in the past decade’s expansion of benefits that has led to the current crisis.

    Crane’s call to fellow progressives fell on deaf ears. So did his reminder of how the state’s pension system works. Union officials insist that unfunded liabilities don’t mean very much because the market goes up and down and they insist all will be well when the economy rebounds. But Crane reminded listeners that no rebound can fix the current problem. He also gave a short primer on the pension system: “When the state makes a pension promise to a state employee, it is simply promising to pay money to the employee at points in the future. Thus, state pension obligations are no different than state debt obligations, which also are promises to pay amounts in the future. But they differ in two important respects: (1) voter approval is not required for pension obligations – governors and legislators have all the responsibility in that regard, and (2) pension costs, unlike debt service costs, are neither capped nor precisely quantifiable in advance.”

    In other words, these are fixed debt obligations – no different than any other debt obligations incurred by the government, except that they are not capped and not subject to public approval. And, he emphasized, “Pension payments are senior obligations of the state to its employees and accordingly have priority over every other expenditure except Proposition 98 (i.e., K-14) expenditures and arguably even before debt service.” Prop. 98 earmarks 40 percent of the state budget to education. After that, the state must pay for these debts before it funds anything else. It’s understandable that unions take the “don’t worry, be happy” approach toward pension obligations – they get theirs no matter what. But any legislator who believes that such obligations don’t harm programs or endanger the state’s budget situation is not dealing with fiscal reality.

    Crane hearing attendees that these defined-benefit pensions are funded when employers and employees make contributions to the retirement system (often, the employer, which is the government agency via the taxpayer, makes the full contribution to the system) and that the combination of contributions and investments earnings is expected to pay for the promised retirement amount. Unlike the 401(k) systems common in the private sector, however, “the state” is required to make up any shortfalls because of insufficient contributions or investment return shortfalls.

    As Crane recounted, CalPERS – which testified against SB919 and insisted at the hearing that the economy was rebounding – has not been particularly accurate in its past predictions. The public assumes all the risk from this pension deal, yet “CalPERS refuses to disclose the information necessary for the state to be aware of and plan for those risks ….” In referring to CalPERS’ 1999 plan to retroactively increase pensions, Crane argued, “It’s nothing short of astonishing that the CalPERS Proposal, which promoted the largest non-voter approved debt issuance in California history, was not accompanied by disclosures of risks or conflicts of interest. Frankly I’ve never seen anything like the CalPERS sales document, which makes even Goldman Sachs’s alleged non-disclosure look like child’s play.”

    When CalPERS pitched that idea in ’99, Crane noted, it never noted that the state would be responsible for any shortfall in investment returns, that its assumed investment returns required “the Dow Jones to reach roughly 25,000 by 2009 and 28,000,0000 by 2099,” that the state had no cap on potential taxpayer liabilities, that its own employees would directly benefit from the pension increases, and that CalPERS’ board members “had received campaign contributions from beneficiaries of the legislation.”

    Yet at the hearing, CalPERS had mocked the Stanford study pointing to the half-trillion-dollar pension liability, which used a “risk-free’ rate of return of 4 percent as a means to identify the current debt free from other financial assumptions. That assumption might be too low, but CalPERS’s own predictions have repeatedly erred too far in the other direction.

    Union representatives insisted over and again that any pension matters should be handled at the negotiating table, even though such negotiations have resulted in the current fiscal train wreck. Unions are at their strongest at the bargaining table, especially when we considers that the government staff who supposedly represent the taxpayers also benefit from any gains the unions achieve, which in part explains such little resistance to the retroactive “3 percent at 50” deals approved in 1999 that have put California in its current bind. That formula allows public safety employees – police, fire, prison guards, etc. – to retire at age 50 with 90 percent of their final year’s pay guaranteed for their lives and the lives of their spouses. That percentage goes even high when various pension-spiking gimmicks are included.

    SB919 would also rein in some of those schemes, require that the pension is based on the final three years of work and stop certain categories of workers such as milk inspectors and billboard inspectors from receiving enhanced “public safety” formulas. It’s hard to understand how anyone could oppose these reasonable tweaks given the financial data. But Senate Democrats weren’t considering serious arguments and didn’t respond to Crane’s point that “All the consequences of rising pension costs fall on the budgets for programs such as higher education, health and human services, parks and recreation and environmental protection that are junior in priority and therefore have their funding reduced whenever more money is needed to pay for pension costs.”

    Apparently, there aren’t any real progressives left in California’s Legislature. The Legislature seems to be willing to take CalPERS’ word on the matter for now, even as the pension fund and its former officials have dominated the front-page news in California with wild tales of alleged pay-for-play schemes and bone-headed leveraged investments in housing developments at the height of the market.

    In the union worldview, all the current problems are the result of Wall Street. The Bay Area city of Vallejo didn’t go bankrupt because nearly 80 percent of its funds went to public safety budgets that ginned up $300,000 a year compensation packages for police captains, but because of supposed municipal mismanagement. And they say there’s no need for new legislation that creates a lower, second-tier retirement plan for new hires because the system is working perfectly well.

    As the Retired Public Employees Association argued in a letter to committee Chairman Lou Correa, D-Santa Ana, in opposition to SB919, “RPEA disagrees with the assertion that California’s public employee pension system is broken. California’s system of providing retirement security and healthcare for our hard working public employees has worked for years – and is working now. It is a well managed system that allows us to recruit and retain good public employees, while keeping the promise made to them for secure, fair and well earned retirement.”

    There’s no question the system does work well for one group of beneficiaries. Government has been involved in a massive transfer of wealth from the private sector to the public sector and those who are slated to receive these millionaires’ pensions – often north of $100,000 a year, cost-of-living adjusted for the life of the retiree and spouse, plus full health care and other benefits, available as early as age 50 – aren’t about to give any ground even though the legislative fixes are for new hires only. The union members were so disrespectful to the few bill supporters who testified at the hearing that the sergeant-at-arms had to hush them. This isn’t about seriously dealing with a fiscal emergency, but engaging in the show-of-force politicking that public sector unions have perfected in Sacramento and elsewhere.

    CalPERS own chief actuary, Ron Seeling, recently said the current pension system is unsustainable, but CalPERS officials were there telling the committee that all is well – not only with the investment fund but with its “smoothing” practices that spread debt out far into the future.

    Indeed, one union official with whom I argued before the hearing just turned 50 and is eligible for a six-figure lifetime retirement benefit whenever he chooses to stop working. I’m a year younger than him and like to think that I’ve worked hard in my career also, but like most private-sector workers I see no retirement date on the horizon. We all must live with the pros and cons of the decisions we make, but from a public policy standpoint it’s odd to create a system that puts the public sector so far ahead of private-sector counterparts. More Americans are starting to see the disparity, a product of political power. One of the stated goals of the legislation, according to its author Dennis Hollingsworth, R-Murrieta, is to “put public sector workers’ compensation more in line with what is offered in the private sector.”

    That’s a reasonable goal, but it’s not going to happen anytime soon – and it’s not going to be based on rational arguments. For instance, Sen. Denise Ducheny, the Chula Vista Democrat who didn’t conceal her hostility to the bill, mocked the bill because it won’t do anything to fix current budget problems (it will take years before the new savings from the new hires are realized) and because it deals only with state workers – not the many local agencies that pay equally generous packages to public employees. That would argue for a tougher bill that took on current employee benefit packages, but it’s no surprise that Ducheny was not advocating for that approach, but for the do-nothing approach of her union allies.

    Some legislators are proposing some minor tweaks in pension-spiking, but the Legislature is not going to pass substantial reforms. In some cases, it is in the process of expanding retirement benefits! That means more program cuts and a continued push for massive tax increases. Democrats are pinning their hopes on plans to eliminate the two-thirds legislative vote requirement to pass budgets and on a host of fee and tax-increase proposals.

    With the state punting on the issue, localities will increasingly look toward bankruptcy. In a recent Wall Street Journal column, former Los Angeles Mayor Richard Riordan and investment advisor Alexander Rubalcava argued that LA is on the brink of bankruptcy: “According to the city’s own forecasts, in the next four years annual pension and post-retirement health-care costs will increase by about $2.5 billion if no action is taken by the city government. Even if Villaraigosa were to enact drastic pension reform today — which he shows no signs of doing — the city would only save a few hundred million per year.”

    This sets the stage for a fiscal meltdown or a massive statewide initiative battle, which could rival the importance of property-tax-limiting Proposition 13 from 1978, which permanently changed California’s and the nation’s political landscape. Given the bent of the Legislature, there aren’t many other choices.

  5. ljdiver Says:

    Friday, May 21, 2010
    32 States Have Borrowed from the Treasury to Make Unemployment Payments; California Has Borrowed $7 Billion
    EconomicPolicyJournal.com has learned that 32 states have run out funds to make unemployment benefit payments and that the U.S Treasury has been supplying these states with funds so that they can make their payments to the unemployed. In some cases, states have borrowed billions. As of May 20, the total balance outstanding by 32 states (and the Virgin Islands) is $37.8 billion.

    The state of California has borrowed $6.9 billion. Michigan has borrowed $3.9 billion, Illinois $2.2 billion.

    Below is the full list, as of May 20, of the 32 states (and the Virgin Islands) that have borrowed from the Treasury to make unemployment payments, and the amounts the Treasury has advanced them. (Numbers in red are billions)

    Alabama $ 283 million
    Arkansas 330 million
    California 6.9 billion
    Colorado 253 million
    Connecticut 498 million
    Delaware 12 million
    Florida 1.6 billion
    Georgia 416 million
    Idaho 202 million
    Illinois 2.2 billion
    Indiana 1.7 billion
    Kansas 88 million
    Kentucky 795 million
    Maryland 133 million
    Mass. 387 million
    Michigan 3.9 billion
    Minnesota 477 million
    Missouri 722 million
    Nevada 397 million
    New Jersey 1.7 billion
    New York 3.2 billion
    N.C. 2.1 billion
    Ohio 2.3 billion
    Penn. 3.0 billion
    R.I. 225 million
    S.C. 886 million
    S.D. 24 million
    Tennessee 21 million
    Texas 1.0 billion
    Vermont 33 million
    Virginia 346 million
    Virgin Islands 13 million
    Wisconsin 1.4 billion
    Total $37.8 billion

  6. VEM Says:

    Carl Luna is a lunatic. Yes, go ahead and advocate for Alaska to pay their fair share of taxes. Us Alaskans will merely charge you “worthless” Californians more for your oil and gas. A resource you Californians can’t seem to live without.

  7. Carl Luna Says:

    Yo Vem,
    Been meaning to reply to this for a while. It is not Alaskans oil. The oil is mostly pumped off Federal lands–like the desired ANWAR sites. So why are Alaskans who do nothing more than live in the cold get a kickback on the oil revenues? The oil belongs to the companies and, more importantly, to the American people, not just Alaskans. The Alaska Permanent Fund amounts to a real shakedown of the oil companies by the State of Alaska. Or, if you will, hush money. Oil companies pay Alaskans money they don’t deserve any more than any other Americans, Alaskans like you shuddup and don’t make waves over your environment. So on behalf of my fellow 38 million “worthless Californians” let me say “shuddup.” You Red State Alaskans (whom we outnumber 54 to 1) are amongst the biggest moochers of public monies in America.

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