Thursday, October 23, 2008

California's Begging Bowl

"California hoped passage of the $700 billion rescue plan Friday would avert financial disaster for the most populous U.S. state, which a day earlier had called for a possible emergency federal loan. Its precarious financial position is an example of how the credit crunch has spread to states and municipalities. ... State Treasurer Bill Lockyer will go ahead with a planned $7 billion bond offering, but market conditions remain dire. ... Schwarzenegger said that if the state couldn't borrow on its own, it would again 'go to the federal government and ask for help.' ... Tom ... Dresslar ... added that the U.S. Treasury has the authority to grant an emergency loan to the state and that the rescue bill reinforces those powers. ... At the local level, 'there are examples every single day of counties hitting the wall,' said Jacqueline Byers, research director for the National Association of Counties, an organization that represents 3,066 counties in the U.S. ... In California, property tax revenue is falling becaue plummeting home prices have resulted in lower assessments, even as cities are tied up by long-term labor contracts, said Mark Moses, chief financial officer for Stockton, Calif. That makes many California cities vulnerable to involvency, he said", my emphasis, WSJ, 4 October 2008.

"California State Controller John Chiang warned Tuesday that the state's revenues and cash flows are deteriorating quickly, in another sign of how the financial downturn has spread beyond Wall Street to state and local governments. In a statement, Mr. Chiang, ... said California is already short $1.1 billion after the first three months of its fiscal year", WSJ, 8 October 2008.

"With credit markets in New York in crisis last week, California Gov. Arnold Schwarzenegger sent an extraordinary letter to Treasury Secretary Henry Paulson asking for $7 billion. Although the governor has since withdrawn that request, it testifies to the dire state of his budget. ... Actually, the state's budget woes should give voters pause--especially since high-speed rail is a fantasy that has as much chance of delivering on its promises of creating 450,000 jobs, vanquishing road congestion and lowering greenhouse gases as 'Conan the Barbarian' had of winning the Oscar. The Golden State's finances are a mess. California's general obligation debt has tripled in the past six years and is now almost equal to the state's $145 billion annual budget. ... But there is little reason to believe [high-speed rail] cost or revenue projections. ... To attract riders, California's rail will have to out-compete cars and airplanes by keeping a lid on commute times and fares. ... It seems California is promising to build a train that is faster, cheaper, more efficient and serves more riders than any high-speed train in the world. And all it has to do to pull off this miracle is defy the laws of economics and physics. This is the kind of creative thinking possible only in the land of Hollywood, but odds are that eventually reality will sink in and California will have to abandon its rail just like Texas, Florida and Southern California were previously forced to do with their far less ambitious proposals", Shikha Dalm, at the WSJ, 11 October 2008.

The credit crunch? Or California government wild spending? These idiots want to give 5 million illegal aliens government services, let 'em. The rest of the US should not pay for it. The idiots thought real estate would increase 20% in value yearly forever and found it won't. Tough. Go bankrupt.

"Credit crisis" or no, California would be insolvent.

The California high-speed rail project looks like another boondoggle. Now wouldn't it be nice if the WSJ applied this kind of thinking to the Paulson Plan and wrote an editorial, "Just Say No" as Nancy Reagan used to say.


Anonymous said...

IMO it isn't the borrowing of the money so much as the getting paid back part. revenues will not meet projections going forward. It really doesn't matter though, because the usa gubbermint is giving away money at the all u can eat smorgasborg.

Independent Accountant said...

Getting paid back? You believe people who buy bonds expect to be paid back? How 19th century. Hahahaha. Bonds.

Anonymous said...

California's state and local government are getting killed by the incredibly high salaries of police and fire. Check the stats on the bankruptcy of the city of Vallejo. The firestaff get $170,000/year average. Fire captains over $300,000/year. Police get similarly generous packages.

Who in the world can afford this nonsense? They are as bad as Goldman Sachs employees, except that they are everywhere. And the state wants to bail these cities out with what? Bonds! The paynever plan. Can I get a credit card that rolls over for ever and my heirs don't have to pay? The ultimate revolving account.

What I do fear is that the feds will bail out this nonsense as they bailed out Goldman Sachs.

A pox on all of them.

Independent Accountant said...

I agree. Do you remember the 1975 headline, "Ford to City: Drop Dead" in the NY Daily News? I do. I expect one way or the other, part of the $700 billion bailout will be used for states and localities. Yes, fireman and such are well-paid.
Anyone who buys US dollar denominated bonds is crazy.

Anonymous said...


Pimco must be shaking in its boots. How on earth are they going to hedge their inventory of bonds when bonds belly up? Any wonder who will be the counterparty? More debt to cover the losses of the bond pushers. Got a problem? Print more debt. Bad debt? More debt is answer. Recession? More debt. Bad stock market? More debt. Foreclosures? More debt. Problems with medical care? More debt.

When the bond market collapses, look out. There will be no room on the lifeboats for women and children. Only the most brutish will survive.

Anonymous said...

On the police and fire salaries, what I am trying to point out is that these are examples of hyperinflationary thinking. There is no one that politically can say their salaries should be restrained. They should always be increased with no questioning, and such services should never be decreased, ie layoffs. The fact that no one has proposed even lowering these very generous salaries for Vallejo should give everyone an idea of how hard it is to contain.

Here are some current extant quotes:
"police and fire will remain the city's top budget priority"
"Stockton's budget deficit is estimated at $18.5 million - not quite ... Police and fire must be part of the solution, or there will be none"
"The police and fire pension fund is causing an extra drag on Baltimore's budget "
"Budget cuts to Redlands police and fire personnel spur safety concerns "
"The Council must approve a budget in June. Kincaid said it looks like his proposal will get close to avoiding layoffs in police and fire"
"Mayor Announces Proposed Budget Reductions for Police and Fire No layoffs of sworn police officers and firefighters. Seattle "

There are many governmental sacred cows that always need to be fed, and are driving local budgets into bankruptcy.

Anonymous said...

First, California has perfected gerrymandering! The "elected" officials elect who the voters are, not the other way around. The so-called elected so-called representatives divide the election districts and draw the election maps. Unless there is a computerized mapping of the districts, nothing will change. The districts are NOT competitive and the senators/assemblymen don't give a damn.

Second, this is what happens when you have socialist/liberals (who high jacked the Democrat Party) run the state economy. If Sen. Barack H. NObama (D-Il) wins the USA will look like Califoria.

Anonymous said...

No elasticity in government services...

Once they begin they run perpetually...

But if this resceopression is as deep as I think lots of things can change...

Including police and fire staffing and more...

Hot topic Mr. Skeptical!

Anonymous said...

"""These idiots want to give 5 million illegal aliens government services."""

And who, do you think, picked those grapes you've got sitting on your dinner table?

So-called illegal aliens are really the new slave race of the US, and they pay a lot more in taxes than they get back in the form of government services.

You ssem to insist that we should keep ripping them off to plug the financial hole...

Independent Accountant said...

Slave race? Get serious. If things were so bad for illegal aliens in the US, they would leave. If the cost of grapes went up 10 cents a pound, it would cost a lot less than educating, medicating and imprisoning our illegal aliens. Are you a member of La Raza? How did Americans eat grapes in say 1970, when only 1% of the American population was Hispanic?
They pay more in taxes than they get in services? Are you crazy? Are you reciting Karl Rove's "talking points"? Who tells you this nonsense?