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Old 01-29-2011, 01:00 PM   #21
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Originally Posted by ERD50 View Post
Another thing that amazes me is just how much money (that they don't have) the State of California gives away. A little googling didn't come up with a comprehensive list, but I seem to recall that whenever we talk about solar or personal windmills, electric cars, or just about anything you might be able to call 'green', California has a large subsidy for it, over and above any Federal subsidies.

Maybe in good times it could make some sense to promote things that you think might improve the quality of life in your state (and I think these are very questionable anyhow), but if you don't have the money, and the improvement is hard to quantify - drop it!

Maybe these states can act as a warning for the country. If some states keep spending, and try to fund it with a constant flow of increased taxes, we can all sit and watch them lose business, lose resident, and lose tax revenue. As that progresses, those states will need to raise taxes even more - rinse, repeat.

So it's one thing to lose businesses to another state (and some of those will be lost to other countries), but if the country continues on a tax & spend path, we will be going down the path of these states.

-ERD50
I totally agree with you. Some of what you say is currently happening in Spain. With our 20.4% unemployment derived from the residential building, tourism and other services crises, and 44 % of youth unemployed, plus our public debt, plus a SS system in need of urgent reform if it wants to survive....these are no times for utopian and beatific measures that, aside from being uncertainly succesful, create a small number of very qualified jobs -unsuitable for most aforementioned unemployed- and may destroy others in a superior number.

Letīs all rant a bit!
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Old 01-29-2011, 01:06 PM   #22
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Are any of us really free from this? I live in Virginia and have no personal or business ties to California. Even so, I'm concerned about this since I believe the problems there have the potential to impact all of us.

The GDP of CA in 2009 was the largest of any single state and represented 13.4% of the total GDP of the US:

GDP by State

Yeah, I guess I was thinking in terms of the pain Californians will suffer if the state takes the necessary steps to implement a solution to the problem rather than the possibility of a total failure which will impact us all as you point out.
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Old 01-29-2011, 01:11 PM   #23
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The GDP of CA in 2009 was the largest of any single state and represented 13.4% of the total GDP of the US:

GDP by State

Exactly. The words "too big to fail" come to mind. The feds rescued AIG and General Motors to save a few hundred thousand jobs, can they really walk away from the state with the largest economy in the country? I think not. California will be bailed out and I think the politicians there know that.

What I don't understand about California is how do they spend their tax revenues? They have some of the highest taxes in the country, yet I have never seen so many bad roads in a place with zero snow falls.
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Old 01-29-2011, 03:53 PM   #24
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The actions needed in California are quite clear. The question is if they can be carried out. There is no indication the political leadership is (or ever has been) committed to serious financial reform. The few past and current efforts are still focused on austerity upon others, which will not work in California (and probably not elsewhere).

Employment by state and local gov't increased around 10% in the past decade, and at the same time public employers became more generous. Employment needs to be reduced to '00 levels and total cost of employment frozen. There is no other way.

Bailout is not likely, because the problem is not one-time but ongoing, and the remedy is not complex, just hard, so it is easier to say "no, fix it yourself" . There is a constituent that will step in sooner or later to force the issue - the bond market - without which no government can operate.

Delayed action means deeper cuts. Getting back to the original question, my guess is there will be 5-10% reduction in public sector employment combined with a slowing of compensation cost and an effort to freeze pensions and reduce health care costs by passing more to the employees. Education and social services will suffer the deepest cuts. Property taxes are likely to increase at a higher rate and may offset some of the education cuts. It will be a long, drawn out, noisy and painful process. Something similar will happen in at least half the states over the next decade.
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Old 01-29-2011, 04:04 PM   #25
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Old 01-29-2011, 06:20 PM   #26
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Just out of curiosity I took the time to play with the number on this site, Comparison US State and Local Government Spending - GSP - Population 1992-2015 - Charts

It lists spending, debt, State Gross Product (SGP), and growth rate for each state.

I copied the number into a spreadsheet and calculated the following ratios as metrics for the health of the state economies.

- Debt/GSP
- Spending/GSP
- (Debt/GSP)/Growth Rate

For each metric I assumed that the higher value is "worse." The idea behind the last one is that a high growth rate makes it easier to "grow out" of debt problems.

- California ranked as the 8th worst state in Debt/GSP
- California ranked as the 8th worst state in (Debt/GSP)/Growth Rate
- California ranked as the 23rd worst state in Spending/GSP

There is no doubt that CA has some major financial issues but my conclusion based on these numbers is that it is no worse than many other states.

Of course CA is the "big kid on the block" and if CA goes down a lot of other things are going to go down with it.

I'm fine with anyone pointing out anything that I may have missed. I haven't studied the issue in great detail and this was a 10-minute analysis.
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Old 01-29-2011, 06:26 PM   #27
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Los Angeles Times: California budget balancer - latimes.com

I fiddled around with the budget calculator today. It sure paints a grim picture.

Ended up cutting roughly 91B dollar budget by 10.5B with deep cuts in education and health and human services and increased revenues by 17.8B. Most of the increased revenue was produced by maintaining 9.4B in temporary tax hikes (1% additional sales tax, one quarter point income tax surcharge, etc.) and and setting vehicle license tax to 2% of value of vehicle (4.3B).

Many will argue this didn't cut spending sufficiently. I suggest going into the link and seeing what cuts can be made without raising revenue as much as I did.

I wish every voter in the state had an opportunity to go through this exercise.
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Old 01-29-2011, 06:32 PM   #28
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Originally Posted by mb View Post
Just out of curiosity I took the time to play with the number on this site, Comparison US State and Local Government Spending - GSP - Population 1992-2015 - Charts

It lists spending, debt, State Gross Product (SGP), and growth rate for each state.

I copied the number into a spreadsheet and calculated the following ratios as metrics for the health of the state economies.

- Debt/GSP
- Spending/GSP
- (Debt/GSP)/Growth Rate

For each metric I assumed that the higher value is "worse." The idea behind the last one is that a high growth rate makes it easier to "grow out" of debt problems.

- California ranked as the 8th worst state in Debt/GSP
- California ranked as the 8th worst state in (Debt/GSP)/Growth Rate
- California ranked as the 23rd worst state in Spending/GSP

There is no doubt that CA has some major financial issues but my conclusion based on these numbers is that it is no worse than many other states.

Of course CA is the "big kid on the block" and if CA goes down a lot of other things are going to go down with it.

I'm fine with anyone pointing out anything that I may have missed. I haven't studied the issue in great detail and this was a 10-minute analysis.

I missed this while I was posting but seems consistent with CA Dept of Finance's finding that CA ranks 15th among states in taxes and fees collected per $100 of income at $17.22.

I don't deny that there are places to cut spending but CA is not as much of a high tax state as it is reputed to be. One of the problems on the revenue side IMO is leaning on volatile income tax receipts rather than balancing those revenues with higher property taxes (I'm ducking now ).
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Old 01-29-2011, 06:38 PM   #29
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The previous post was my left-brain analysis.

This is my right brain talking:

In third grade my class read a story about the Spanish (e.g. Zorro) period of California history. I still remember a quote from that story. It went something like this "Better a pauper in California than a prince elsewhere." I grew up in another state and at the time I thought that it was a pretty good place (still do actually) and was a bit offended that anyone thought that far off California was that much better. After living in California for most of the last 30 years I now understand that quote.

Sometimes I think that our politicians are trying to put me in the position of having to choose between being a pauper in California or a prince elsewhere. I hope that I don't have to make that decision but waking up in a cardboard box and looking out across the beach to the blue Pacific with an equally blue sky above it won't be that bad of a life. I just hope that guy left his uneaten pizza in the dumpster last night.
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Old 01-29-2011, 06:56 PM   #30
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Bailout is not likely, because the problem is not one-time but ongoing, and the remedy is not complex, just hard, so it is easier to say "no, fix it yourself" .
I really don't understand this. Why do the ongoing nature of the problem or the difficulty of the remedy make it easier to say no to a bailout? It seems to me this is more like moralizing and not so much like reasoning.
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Old 01-29-2011, 07:48 PM   #31
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Lived in SoCal since 65. Love it here, especially since I don't have to drive anymore. Don't tell anyone, but it's early retirement heaven. Here we are in the dead of winter with mid 70 temps.

If my math is correct, each resident currently owes about $2000 toward the debt. Unfunded liabilites are estimated to be 1T dollars, meaning we'll owe $27,000 each. I don't care how much they raise taxes, we aren't gonna make that.

A new virtuous cycle is unlikely. We're not very business friendly, and bubbles (like our real estate bubble) historically don't re-inflate.

Default or Fed bailout are our only options. Fed bailout is probably more likely. A California default could very likely send us into an economic tailspin.
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Old 01-30-2011, 08:34 AM   #32
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A California default could very likely send us into an economic tailspin.
I have always believed that Bankruptcy is merely the end of a Dream. I know States cannot Bankrupt but a "tailspin" would, also, fit the description. Rarely a bad thing long term... someone will pickup the pieces and profit mightily.
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Old 01-30-2011, 08:40 AM   #33
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Oh... and I almost forgot. After the hyperinflation happens, it is going to drop off into the ocean!
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Old 01-30-2011, 11:15 AM   #34
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I really don't understand this. Why do the ongoing nature of the problem or the difficulty of the remedy make it easier to say no to a bailout? It seems to me this is more like moralizing and not so much like reasoning.
Sorry. No intent to moralize. Let me restate to clarify.

I agree with Kramer. California is a case of self-inflicted political dysfunction.

The real problems are political, and they cause budget issues. The financial challenges cannot be easily resolved until the political problems are.

Organizational studies have shown that change is more effective when it begins at the top and outsiders are brought in. Jerry Brown is in no way an outsider, and this leads me to doubt he can lead the type of change that would result in a more financially stable state. This is politics, thought, and strange things do happen.

California has too little revenue and in addition too much spending. Both need improvement to be sustainable. Spending is mostly personnel - salaries and benefit costs, so reduced spending means fewer employees and less generous compensation. This is unavoidable.

IMHO, the budget process will continue to lurch and stumble with lots of political poker and hardball being played. Vested and ideological interests are strong and well financed and will probably not lose much in the short term. It will be the torture of a thousand cuts. Social programs, especially those not mandated, are going to suffer - pain for recipients and providers alike. This is a tough and risky environment for a 40 year old employee of the state or municipal entity with a defined benefit plan and little retirement savings. Also tough for people that depend on public transfers to get by.

Regarding bailout, it's difficult to conceptualize one that would provide effective support and be politically feasible. The bond market, however, does not seem to consider California excessively risky, so institutional investors feel nothing is going to "break" anytime soon.
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Old 01-30-2011, 11:34 AM   #35
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States could do some out of the box thinking and cut payroll.

Look at all the fees, licenses, and vehicle registrations. These are really just revenue generators, and all take people to issue. Add the fee to the income tax forms, and do away with all the local licensing stations. Put a plate on the car at time of sale, it stays for life. Out of state cars can get a plate from a new car dealer. They would love to have a reason to talk to you. Drivers license, like passports, send in a picture and centrally locate the office. There are draw backs to each of these, but maybe not as big as shutting down schools, police and fire.
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Old 01-30-2011, 04:01 PM   #36
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It seems to me that residents of other states may well balk at their federal tax dollars going to bail out a state that refuses to tax its own residents appropriately. When the people of CA get rid of Prop 13 and start paying real property taxes at the levels we here in the Northeast pay, then we can talk about helping out.
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Old 01-30-2011, 04:30 PM   #37
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I don't think the residents of West Virginia and Kentucky, poor states that nonetheless have budget shortfalls (as a %) much smaller than CA's, will be in a mood to bail out Hollywood, Silicon Valley, Malibu, and San Francisco.
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Old 01-30-2011, 04:40 PM   #38
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Were you in a mood to bail out AIG? Where you in a mood to bail out GM? I know I wasn't but no one asked me for my opinion... I am waiting for someone to go on TV and tell us that if CA is not bailed out RIGHT NOW, the risk of contagion to other states would be too great and the world as we know it would come to an end.

I also believe that the bond market has not punished CA yet because bond holders fully expect CA to be bailed out.

I know, I am a cynic.
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Old 01-30-2011, 05:15 PM   #39
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I am a native Californian but haven't lived there for over 30 years. Still, it really pains me to witness the situation. I would like to move back to N.Calif for my retirment years as I have family there. But the possibility of higher taxes, wider poverty and social breakdown frightens me.

Still, Illinois and New Jersey are in similar bad straits and almost all other states are in difficulty as well. So, logically, it's hard for me to hear anyone bad mouth California when most other states have made similarly bad financial decisions.

What will happen? At a recent congressional hearing Bernake denied the Fed had any authority to bail out states and flat out said that would not happen. The congress with its increasingly Republican majority will be unlikely to continue more stimulus spending for the states. So, if as was suggested, that the states will force program spending on the municipalities that would likely cause more municipal bankruptcies.

This all plays out over the next few years, causing more disruption, more poverty, more social disfunction. I can't see any positive outcome at all. If anyone does, please lay it out in detail. I would really like to feel more positive about the situation.
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Old 01-30-2011, 05:48 PM   #40
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We have forgotten the lesson of the ant and the grasshopper. In good times CA spent on just about everything you can think of. Bad times have come and the grasshopper is hungry, and knocking on the ant's door.
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