What's The Matter with California?

“We’re tired of waiting. We’re tired of endless delays.”
California State Senate President Pro Tem, Darrell Steinberg, D-Sacramento

Tuesday night, at about 11pm PST, the Republican delegation in the California State Senate, stomped on the gas, firmly grasped the wheel and steered the State straight for the cliff in front of them. In a move that at best could be called puzzling, at worst political suicide they deposed their caucus leader in the middle of an all night session called to get the one final Republican vote needed to pass the State’s budget.

The Senate Republicans turned Minority Leader Dave Cogdill, R-Modesto out of his leadership post because he had negotiated a budget deal with the Democrats that included tax increases. In his place they elected Dennis Hollingsworth, R-Murieta, a well known hardliner against any tax increase. As Cogdill said after the midnight coup “It’s a shame it had to end this way.”

It sure is. If it were not so tragic it would be funny.

The compromise budget deal that the Assembly has been voting on took three months to negotiate. It includes $16 Billion in program cuts, $14 Billion in tax increases, and $11 Billion in borrowing. The deal passed the State Assembly and is one vote short of the supermajority required to pass in the State Senate. As all the Senate Democrats are voting for it, the budget needs three Republican votes to pass. Two Republicans have pledged to support the deal. So right now the State is being pushed over the brink for the want of one Republican vote.

What does the brink look like?

On Thursday, work on 267 infrastructure projects worth $3.7 Billion will stop - putting 97,000 construction workers out of a job. It will cost at least $400 million to restart these jobs. Layoffs could begin for 20,000 State workers. The State could start paying its bills with IOU’s. This includes payments of unemployment benefits. California’s credit rating is now the worst in the nation, making it difficult to impossible to borrow money.

Along with Nevada, California is leading the rest of the states in this march to the abyss. According to Stateline.org, a non-partisan research group for state government issues, budget shortfalls like California’s are going to increase in number, size and severity from FY09 to FY10. In FY09, 31 States had a budget shortfall that needed to be resolved. By mid FY09 that number had risen 38 with many of those states having to reopen their budget process.

In FY10, 34 states are projecting a budget shortfall, and only 3 – North Carolina, Colorado and Oklahoma - will have shortfalls less than 5% of their General Fund budgets. 4 states will exceed 20% of their General Fund budgets. The remaining 27 states will have shortfalls exceeding 10% of their general fund. (http://www.ncsl.org/programs/pubs/statebudgetgaps.pdf).

The speed and depth of the states’ budgets issue is graphically illustrated in this interactive map: (http://www.ncsl.org/programs/fiscal/StateBudgetUpdate0109.htm)

The stimulus package will at best be a holding action. The $40 Billion from stimulus targeted for state budget stabilization will not be allocated according to need. It will be a drop in the bucket of California’s need, and will at best put off cuts in other states for a year. So it will be up to the states to resolve their own budget issues.

If California is the example of how not to do the process one can look towards Kansas, where a popular Democratic Governor was able to work with a Republican legislature to close a $200 Million budget gap. The Kansas budget “impasse” lasted only two days, but threatened to shut down the state government. In the end Gov. Sibelius and the Republican legislature got past throwing jabs at each other, compromised and approved a budget that will close the current $200 Million shortfall, and get Kansas started on closing the projected $1 Billion shortfall for next year. (Yes that is a quintuple increase in the budget shortfall from the FY09 to FY10). Adults came together, scored their political points and then created a painful but mature solution.

Back in California, we are tired of waiting. We are tired of being held hostage by a bankrupt economic ideology. The State is being ruined by tax zealots who are sure tax increases will hurt the economy more than erasing the State’s good credit rating, defaulting on payments, and throwing people out of work while at the same time making it impossible to pay any benefits.

California politicians are busy trying to make the other side fail in order to prove themselves right. It is more important for the Republicans and the Democrats to prove their point than save the economy. Let’s hope this is not a trend that will get exported to the rest of the nation. If it is, FY 2010 will be even harder than predicted.