Budgetary Gimmicks Meet Economic Reality

Once again, California is already outside of its projected state budget, passed late last June.

How can Sacramento already be spending more than it expected to collect only two months since the budget was signed?

It is the economic assumptions that the state makes when planning the budget that are just as important as the application of rates of taxation and fee rates.  Is that boring?  Quite possibly.  But it speaks to the larger point that government is inefficient in determining future economic activity and, when possible, will make absurd assumptions when politically expedient.

And why is this important?

It is important because it allowed public officials to proclaim Californians will “live within our means” because the budget is now balanced – a refreshing headline!

But the “means” are the assumptions built into the budget.  In this year’s budget, Sacramento expected the economy to expand rapidly, despite a stubborn unemployment rate of 11.8% as of June and a willingness to drive away jobs. Thus, California is already ten percent below revenue projections, which amounts to a loss of revenue of nearly $539 million.

When sluggish economic reality meets the decree of Sacramento, automatic budget cuts are initiated, which insulates public officials from the criticism that comes with assembling a budget that truly reflects living within our means.

Regardless of nominal numbers, when a state spends more revenue than it takes in at an increasing rate, there will be a threshold where the state becomes insolvent.  Without quantitative easing or the ability to increase money in circulation, that state has no control over the currency it borrows and spends.  This makes every state a lot more susceptible to budgetary crises than sovereign nations.

Sacramento is in need of true budgetary solutions that reflect the state’s economic reality not rosy assumptions that politicians would like to see.  State government needs less economic delusion and more economic leadership. The first step is honest, household budgeting procedures.

 

A New Chapter For California: Chapter 11

As a state, we take in about $70 billion a year. That looks like big number, except for one problem. We spend about $90 billion a year. You don’t have to star in Good Will Hunting to figure out that there’s a hole in that math and some blame to be placed.

Actually, there’s tons of blame to shovel around. You can go back to Gray Davis, who somehow thought that the rising tide of tax receipts from the Internet boom would last forever. Actually, he wasn’t alone–pretty much everybody felt that way, but pretty much everybody wasn’t Governor. With all that money flowing in, he was a laydown for the state unions that demanded and received all manner of salary increases, retirement goodies, and other means of reward not tied in any way to performance.

Once that particular beanstalk crashed to earth, California was stuck with enormous transfers to its unionized workers that it could no longer afford. But it had to pay them anyway.

Schwarzenegger followed, and we as a state are waking up from that political equivalent of a one-night stand with the same question on Schwarzenegger’s housekeeper’s mind–What were we thinking? Or were we just blinded by his muscular good looks?  He’s free, and we’re stuck with his love child, a $20 billion deficit.

Schwarzenegger’s next movie shouldn’t be a Terminator film. It ought to be a remake of Gulliver’s Travels, re-christened Governor’s Travels, or Governor’s Travails.  Here’s the plot:  Ahh-nold is tied down to a bed of concrete cigar boxes by a bunch of girly men playing the part of Lilliputians playing the part of members of the State Assembly and Senate. The only person who got more money out of Schwarzenegger than the unions will be Maria.

Then you’ve got the left, which has somehow made a moral issue out of violating borders and demanding handouts. Frankly, as a businessman, I’m astonished I have time to write this column. I’m so busy supporting not just my family but sixteen union workers and approximately forty-three undocumented individuals who are attending California schools and universities, benefiting from California hospitals, and otherwise enjoying the crumbling infrastructure of California, all on my dime.

I actually agree with one liberal shibboleth–people aren’t illegal. Illegal acts, however, are illegal. Breaking the law is illegal. If the numbers were reversed–if California took in $90 billion in taxes and only spent $70 billion–I might feel a little more charitable. As it is, I’m feeling a little pinched.

That’s why I say it’s time for California to declare bankruptcy. A clean slate. A fresh start. Just like you see on those late night infomercials. California ought to go to one of those bankruptcy guys you see advertised on the backs of buses and declare itself bankrupt, for the low, low fee of $249.00, plus filing fees. If we did that, what would we get?

We’d get a chance to start over. We’d get a chance to rewrite all the agreements with the unions, and maybe we’d have enough money left over to buy back some of the legislators whom the unions currently own.

We’d be able to reallocate spending in this state, so that there’s more of a connection between who earns money and whose kids get educated.

We would no longer be tied to the craven, secret giveaways that governor after governor has offered to special interests in exchange for campaign contributions, cigars, hookers, junkets, or whatever the currency of Sacramento really is.

With that kind of clean slate, we’d be able to pay people what they are worth, instead of what their union leaders have been able to carve out for them over decades of wheeling and dealing.

We’d be able to pay our prison guards what they would make in other states, which would allow us to build more prisons and arrest more bad guys to fill those prisons.  We might even have enough left over to hire some more prison guards.

As a result, the state and municipalities might not be so broke that they have to spend all their time nickel and diming businesses to wring out every ounce of tax revenue to pay for the bloated expenditures that are destroying our state.

There might even be enough money left over to re-open the courtrooms, libraries, and emergency rooms that have been shuttered by our endless financial emergency.

Would it be a black eye for California if we went bankrupt? Yes, but compared to what? The knuckleheads in Washington, who nearly took down the world economy and may have torched America’s fragile economic recovery in the name of scoring a few points during the debt ceiling fiasco? Compared to Portugal, Italy, Ireland, Greece, and Spain–five European nations who make Arnold Schwarzenegger and Jerry Brown look like Thomas Jefferson and Alexander Hamilton?

Although, come to think of it, Thomas Jefferson died broke, so maybe that’s not the best analogy.

You get what I’m saying. As one economist put it, “Things that can’t go on, stop.” It’s time we put a stop to the idiotic, seemingly unstoppable spending that is bankrupting the state, driving businesses to Texas or other healthier, more business-friendly locales, and get things headed in the right direction.

Going bankrupt, for California, would hardly be a badge of shame compared to what’s been going on in Sacramento for decades. It would be a situation where the state finally told the truth.

 

Michael Levin is a New York Times bestselling author and runs BusinessGhost.com, America’s leading provider of ghostwritten business books.