CHESSNOID

10 weeks after passing the last California state budget after many months of deliberation, the old news is new news which means the budget is a bust again.  In reality, the state budget issue was never resolved.  We had many people working on this budget and they were never able to come to a real compromise.  Instead they hammered away for as long as they could and eventually gave up and left it up to accounting tricks to move the numbers around so technically the budget would be balanced and the lawmakers could move forward to other business.

The only problem is this budget as well as future yearly budgets will always be in jeopardy unless the State of California recognizes the issue of balancing the budget is they no longer can afford to pay for all the services they give out.  The revenue for California is falling for 2 reasons that are inter-related.  First foreclosures are up in record numbers.  Second, the unemployment rate is up in record territory too.   This leads both to less property taxes collected and less income taxes collected.

The State of California doesn’t have the luxury of printing money to pay its bills like the Federal government.  In the short term that hurts the state, but in the long term the real problems eventually get resolved without collapsing the value of the dollar or creating inflation (which is what the Obama administration is currently doing).

Oct. 10 (Bloomberg) —

California Governor Arnold Schwarzenegger will know within a month whether a $1.1 billion drop in revenue collections is part of a growing budget shortfall or an isolated event, his budget spokesman said.

Revenue in the three months ended Sept. 30 was 5.3 percent less than assumed in the $85 billion annual budget, state controller John Chiang reported yesterday. Income tax receipts led the gap, as unemployment reached 12.2 percent in August.

“The culprit here appears to be estimated quarterly personal income tax statements,” H.D. Palmer, the governor’s budget spokesman, said yesterday. “The numbers are cause for concern, but the issue now for us is to determine if this is a one-time event or whether it has more long-term implications.”

The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing. Even with those actions, state budget officials predict an additional $38 billion in deficits in the next three fiscal years combined, including $7.4 billion in the year starting July 1.

Will the federal government allow the state of California to fail?  Only time will tell.  I would venture to guess if we got it to that point the Obama administration will bail out California and every state thereafter.  The only thing is they won’t call them bailouts.  They will give them some fancy name like TARP, PIPP, or SOL BS.