Tomorrow, Friday, July 10, 2009, California’s large banks will stop accepting California’s IOU’s. The state is out of money, and the bankers see no prospect of the state solving its problems.
Leadership steps up in a crisis. A vacuum exists in the California Assembly. The Speaker of the Assembly, Karen Bass, walked out of a budget negotiation last Wednesday, June 30. She couldn’t stand the pressure. July 1 is the start of the new fiscal year. Had an agreement been reached on Wednesday, an additional $3 billion increase in the 2009-10 deficit would have been averted. Speaker Bass walked. She is AWOL, MIA, a quitter. She's earning $133,000 to walk.
Speaker Bass’s response to the pressures was to storm out of the Big 5 budget meeting within half an hour, exclaiming about the governor: “He broke it; he should fix it.”
Obviously no agreement was reached on June 30 so July 1, the start of the new fiscal year, resulted in the state issuing IOU’s because it was running out of money.
So much for leadership!
The previous Saturday, June 27, 2009 she expressed some interesting and sad comments. She was asked the question: “How do you think conservative talk radio affected the legislature’s work?”
Her answer was: “The republicans were essentially threatened and terrorized against voting for revenue. Now [some] are facing recalls. They operate under a terrorist threat. “You vote for revenue and your career is over.” I don’t know why we allow that kind of terrorism to exist. I guess it’s about free speech, but it’s extremely unfair.”
Note that the Speaker won’t even use the phrase tax increases. It’s arrogant to treat voters with such contempt. Twice in recent elections they insulted the intelligence of voters, first by camouflaging extending term limits by calling it legislative reform” and then in May by hiding tax increases as spending limits. The voters rejected both actions.
The tax increases lost in every county on May 19 in California, all 58 counties, including the City and County of San Francisco, where conservative talk radio has little impact.
On the Democrtaic side, the public employee unions are rumored to have told Democratic legislators that if they vote for certain budget cuts, they will be defeated in their next primary.
She boycotted the budget talks last Monday and today, Thursday, she flew in the afternoon from Sacramento to Los Angeles to give a live interview on NBC 4 TV. She blamed the Senate for not approving the Assembly’s budget bill.
The Assembly had spent the two weeks prior to June 30 in passing a budget which they knew was dead on arrival before the Senate and the Governor. It included $2 billion in tax increases, to wit a 9.9% oil excise tax, an increase of $1.50 in cigarette taxes, and another increase in the car tax.
Speaker Bass’ qualifications for the office are simple. Just 5 years ago, Karen Bass was in her own words, a community agitator”, also known as a community organizer. She understands as much about economics as President Obama, another community organizer.
The problem in California, as well as nationally and in most states, is that the legislators, both Democratic and Republican, have long since stopped viewing the public funds as a public trust, but instead view it as the pubic trough.
The budget agreement reached in February was essentially dead the second it was signed into law. The supposedly solved deficit was immediately $16 billion, $24 billion on June 30, and $27 billion on July 1. Her temper tantrum cost the state $3 billion.
How bad is the budget picture? Corporate income tax revenues have dropped $531 million from July 2008 through May 2009, personal income taxes $10.2 billion, and sales taxes $2 billion, while the unemployment rate has risen to 11.5%, chasing Michigan which has an excuse.
Yet, the sales tax is now 9.75% in Los Angeles, and higher in some smaller communities, the income tax is now surpassed only by Hawaii, and the car tax was doubled. High taxes often result in lower revenues, as taxpayers and businesses adjust, often voting with their feet.
Karen Bass walked out of the meeting. Businesses are walking out of the state.
The state’s manufacturing base lost 79,000 jobs from 2003 to 2007, while Minnesota, Oregon, Texas, and Washington gained 62,000 manufacturing jobs. Texas and Washington lack an income tax and Oregon a sales tax. California is now about to lose its last automobile manufacturing plant. GM is pulling out of its half of the NUMMI assembly plant in Fremont, which means Toyota is probably going to close the high cost facility. The plant employs 5,400, including 4,100 UAW workers.
High taxes, high workers compensation costs, high labor costs, entrenched bureaucracies drive businesses out of the state.
Taxpayers are fleeing the state, from millionaires on down. The state’s population is still growing, but in births and immigration.
The state is doing little to promote growth.
Governor Schwarzenegger has proposed budget cuts that are severe in their application: elimination of Cal Grants for college students; curbing growth in MediCal, and increased use of computers in lieu of pen and papers in the enrollment process; tightened enrollment procedures for food stamps and welfare; reduced services in the multi-billion dollar, and ripe for fraud, home health care program; reporting requirements for CalWorks; and changing pension benefits for new employees.
Make no mistake about it, the proposed cuts are draconian; the safety net will be shattered. The state can no longer afford its promises of a safety net, government employee salaries, pensions, and gold plated medical benefits. Absent a federal bailout, the situation will be even worse next year.
UCLA has recently run a national advertising campaign featuring its programs and distinguished alumni. One of the ads featured Speaker Bass. If the state legislature is going to cut the budget of the state institutions of higher education, then it make sense to curry favor with a powerful legislator.
Speaker Bass’ pressure is understandable. She probably feels like the hamster on the exercise wheel in the glass box. No matter how hard she runs, the wheel only goes one way – to nowhere.
Plunging revenues, opposition to tax increases by the Governor, Republican legislators, and especially the voters, declining manufacturing, fleeing businesses and tax payers, opposition to budget cuts by the public employee unions, and a plunging credit rating. lower than even Louisiana, puts her in a box she can see no exit from.
I know where Waldo is, I know where Speaker Bass came from, I’m not sure where she is, but I know she’s not going anywhere unless she thinks out of the box.