California and the Pending Collapse of Liberal State Governments by Gregory Hilton

The California fiscal crisis impacts all of us. The state is running out of money and it is now likely they will default on their debt which will hamper our national economic recovery. Unemployment is over 12%, they have America’s lowest credit rating and the second-highest rate of home foreclosures.
California is now $21 billion in debt, and if they were a business the state would have to declare bankruptcy because they are unable to pay their bills. The state’s tax revenues have fallen from a high of $103 billion in 2007-08 to $84.6 billion in the current fiscal year.
No other state can match California’s fiscal crisis, but many states have similar problems. They have spent too much, enacted policies which have driven employers away, and repeatedly caved in to the excessive demands of public employee unions. Few people are paying attention to Wisconsin but despite a balanced budget requirement, the state’s deficit per capita is four times that of California. Similar stories are rampant throughout Blue America.
Governor Arnold Schwarzenegger (R) took office in 2003 on a promise to “end the crazy deficit spending” and to fundamentally change state government. He has tried to cut the budget many times but the legislature has rarely been cooperative. Some significant reductions have been achieved and the spending gap was over $60 billion last summer. Six months ago $32 billion in cuts were finally enacted.
It was an impressive accomplishment, but far more needs to be done. Schwarzenegger’s next plan will be unveiled during his annual State of the State address on Wednesday and this will be followed by the new budget will be released on Friday. He is expected to ask for changes to the state’s costly pension system, which he has been seeking for several years, as a last major accomplishment. He will also seek an authorization for additional oil drilling off the Santa Barbara coast.
A bipartisan tax commission created by Schwarzenegger and outgoing Assembly Speaker Karen Bass (D) recommended sweeping overhauls. The panel recommended repealing the sales and corporate taxes, flattening the income tax rate and imposing a new type of tax on a wider variety of businesses that would include the service sector. The recommendations have failed to gain any traction in the legislature.
“We’ve already gone after the low-hanging fruit and the medium-hanging fruit and the higher-hanging fruit, so it’s going to get tougher and tougher now to balance the budget,” Schwarzenegger said. The Governor will leave office in January 2011 after seven years. Democrats have controlled the state legislature for many years but they have been deadlocked for a long time.
Similar to the U.S. Congress, they do not want to pass any additional unpopular budget reductions in an election year. There are no easy solutions left, and the state has a political crisis in addition to a fiscal crisis. The legislature is worried about its own unpopularity and they do not want to address the problems presented by bloated public employee unions and entitlement spending.
An excellent analysis of the current situation has been made by former San Francisco Mayor Willie Brown (1996 – 2004). It is difficult to think of a more liberal politician than Brown, 75, who previously served as Speaker of the California Assembly for 15 years. He has been closely associated with House Speaker Nancy Pelosi for over three decades. Brown is unique in that he has come forward to admit the origins of today’s problem. His insightful remarks appear below:
“If we as a state want to make a New Year’s resolution, I suggest taking a good look at the California we have created. From our out-of-sync tax system to our out-of-control civil service, it’s time for politicians to begin an honest dialogue about what we’ve become.
“Take the civil service. The system was set up so politicians like me couldn’t come in and fire the people (relatives) hired by the guy they beat and replace them with their own friends and relatives. Over the years, however, the civil service system has changed from one that protects jobs to one that runs the show.
“The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life. But we politicians, pushed by our friends in labor, gradually expanded pay and benefits to private-sector levels while keeping the job protections and layering on incredibly generous retirement packages that pay ex-workers almost as much as current workers.
“Talking about this is politically unpopular and potentially even career suicide for most officeholders. But at some point, someone is going to have to get honest about the fact that 80 percent of the state, county and city budget deficits are due to employee costs. Either we do something about it at the ballot box, or a judge will do something about in Bankruptcy Court. And if you think I’m kidding, just look at Vallejo.”

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