Governor Arnold Schwarzenegger, who bullied his way into office by decrying "the car tax" -- i.e., raising vehicle reg fees in order to make up for a budget shortfall -- will soon raise vehicle reg fees in order to make up for a budget shortfall.He also plans to furlough state workers two days a month.
The state will probably soon offer IOUs to vendors and to those who depend on state funds. On February 1, the state will simply stop making payments.
Among those not getting paid: taxpayers who file early awaiting their refunds, programs that help the poor and disabled and college students who rely on grants for tuition, housing and textbooks.The IOU tactic has been tried before:
The last time California issued registered warrants was in 1992, during two-month budget battle between then-Gov. Pete Wilson and the state's legislators. But after the state issued almost $4 billion worth of IOUs, many banks stopped accepting them as deposits, claiming the five percent interest didn't pay for the hassle of processing them.More than that: State tax rebates will be delayed indefinitely.
In all the discussion of the California crisis (which has its echo in other states), no-one has mentioned one key fact: The suspended tax rebates in California effectively cancel Obama's stimulus program in the state. A worker may receive a $500 "rebate" (or gift) from Uncle Sam even as AH-nold decides to withhold the average rebate check of $724. So if you live in the Golden State, you can expect to be "stimulated" to the tune of negative $224.
Are you affected if you live outside the state? Of course. The world will know no economic recovery unless America recovers. There is no economic recovery in America without California -- this state always leads the way. There will be no recovery in California without a stimulus. And there will be no stimulus.
On the bright side, some $11 billion of Obama's stim plan may go to directly to California's state budget. Although some of you may bitch about the unfairness of that gesture, this state has earned it. Unlike the residents of most "red" states, our citizens routinely pay more to the federal government than they receive in goods and services. Those good Christian folk down in Alabama and Georgia have mooched from Californians for far too long.
How did this disaster happen? This writer has a few worthwhile observations (even though he includes a gratuitous and nonsensical swipe at Keynesianism):
So the states budgeted anticipating an economy that would be supported by more years of double digit growth in housing prices. Obviously the exact opposite has occurred as housing prices have declined by levels not seen in history. Then the snowball started rolling.For years, AH-nold lucked out. The housing boom meant increased revenues. But why couldn't anyone foresee that the boom was unsustainable?
As property values deflate, revenues from property taxes decline respectively. We’ve also seen massive amounts of lay offs. That’s less income tax revenue as well as increased payouts in social programs. Now we’re looking at consumer expenditures dropping off a cliff resulting in less sales tax revenue.
I stand with those who suggest cutting the prison budget:
“Corrections,” an ironic misnomer, has jumped from less than $5 billion a year to more than $10 billion in the last decade, over twice as fast as school spending, the biggest budget item. It now costs about $45,000 a year to feed, clothe and medicate each of the state’s 170,000-plus inmates, or roughly five times what taxpayers spend on a typical public school student. And that doesn’t count what it costs to supervise tens of thousands of parolees. One element of any plan to close the state’s immense deficit, as well as relieve the overcrowding that invites federal intervention, must be to get a handle on prison costs by shedding some low-intensity inmates.Much money could be saved if low-level drug offenders and other non-violent inmates were simply allowed to walk.
9 comments:
I wonder...can the employees furloughed for two days w/out pay file unemployment for those days?
snark
Joe, prisons might the way the Big Boys plan on "housing" folks in the future. There's an article by Ellen Brown over at OpEdNews entitled, Mysterious Prison Buses in the Desert. Here's the intro:
"Prison buses are driving around empty in the Tucson area. Are Wackenhut and the DHS preparing for civil unrest?"
Being one of those people who takes care of the poor and disabled, I get to look forward to being evicted for not paying rent. And for some reason gas stations don't accept IOUs.
The fact that I won't receive my overpaid taxes from the state of CA doesn't bother me as much as most since we've been fighting about my 2001 taxes and the state hasn't sent me a refund in 7 years. But I sure am going to miss that roof over my head and my mother with dementia is certainly going to be confused.
This was a FU of the first order and even relieving the prison overcrowding by releasing low level offenders isn't going to be able to fix it. Neither will increasing the sales tax. We need jobs. Jobs that Americans with Master's used to do but have now been shipped out of the country. Once people start realizing that Wal-Mart is losing money in the state, the last great employer will be gone.
Great post.
Then there is the CRA, The Community Reinvestment Act of 1977. My town uses this act to take our tax money, property taxes, taxes on utility usage and instead of putting that money into our fire and police and road services, instead had CRA siphon that money and uses it for developers. They give land to developers to build. They give incentives to developers. They build parking garages. Then they tell us we have no money for basic services. How many other communities have their tax dollars steered to their politician's biggest donors. Can we expect a recall of the California Governor? No. They can't afford it.
Checking out the past California recessions vs. US recessions, while they are correlated, there is not quite the exact relationship this post implies.
One WSJ article says California is not a bellweather for the national economy by several historical measures.
One, the NATION led California into recession in '90, when California was very late to participate. So robust was the state economy in the face of the growing national slowdown that Californians celebrated an apparent unique immunity from the national economy.
But also interestingly, in the recessions of '90 and '01, California did not recover nearly so quickly as did the national economy, taking about 6 years to fully recover, while the nation had relatively short (less than 1 year) recessions. (This was the reason Bush didn't get much credit for the ending of the recession. For the feeling of recession famously lingered in rolling pockets of regional downturns, including California, as I remembered and this article backed up).
Given the Prop. 13 limitations on property taxes, I don't think the crashing market prices for homes has had quite the same effect on state or local revenues it has had elsewhere. (It pegged taxes to some '70s level of pricing, and some miniscule percentage increase annually from there).
XI
I question any article which goes against the received wisdom that California traditionally leads the nation out of recession.
Under Prop 13, property is revalued when it changes ownership.
In the last two (brief) recessions, California had unusual economic factors that further depressed its economy long after the rest of the country went into re-expansion/recovery.
Perhaps you remember that the '90 recession was accompanied by a large aerospace industry cutback from the military (which disproportionately affected California relative to almost any other state)?
And, of course, the 2001 recession had been preceded just prior by the dot-com bubble bursting, disproportionately hitting Silicon Valley and similar California internet business concentrations.
So, while it USED TO BE TRUE that California 'always' leads the nation out of recession, that rule has been 'observed' in its breach since 1990.
Here is a State of California official site
http://www.lao.ca.gov/1995/010195_calguide/cgep1.html
making this point about the '90 recession:
California Has Had a Worse Recession and Weaker Recovery Than the Nation
In contrast to generally outperforming the nation during the 1970s and 1980s, California's economy has performed worse than the nation's thus far in the 1990s. California's recession was worse, and its economic recovery began later and has been weaker, than the nation's. [Note: thus California didn't lead the US economy out of recession, instead trailing it]
For example, personal income growth from 1990 to 1994 for the nation was 22 percent (5.2 percent annually), compared to 12 percent (2.8 percent annually) for California. Thus, California's income growth was only about half the nation's.
California also had significantly fewer jobs in 1994 than in 1990, compared to a 4 percent increase for the nation. California lost many jobs within the manufacturing sector, mostly relating to cutbacks in aerospace jobs due to the decline in federal defense spending.
California's relatively worse recession and weaker recovery contrasts with what occurred in the previous recession, when the state did better than the nation. For example, the significant job losses which occurred nationally in the early 1980s did not occur to as great an extent in California.
Unemployment rates provide striking evidence of the most recent recession's relative severity in California. During the 1980s, the nation's and California's unemployment rates moved closely together. In contrast, over the past four years California's rate rose by much more and for a longer period, and subsequently declined by much less, than the nation's. The state's rate currently is about 2 percentage points higher than the nation's.
Housing Was Hard Hit by the Recession
Although direct employment in the construction sector accounts for only about 4 percent of all jobs in California, its impact on the economy is much greater. This is because construction activity gives rise to economic activity in many other sectors of the economy, such as the manufacturing of equipment and building materials, and various service and trade-related activities.
Housing construction was especially hard hit by the recession. New residential building permits fell to only 85,000 in 1993, the lowest in over 25 years on a per capita basis. By comparison, new residential building permits averaged about 210,000 during the 1970s and 1980s, and peaked at over 300,000 in 1986.
Defense Spending Has Sharply Declined
Federal defense spending as a share of the California economy reached a peak in the late 1960s at nearly 14 percent, sharply declined during the 1970s, and then partially rebounded through the mid-1980s. Since that time, however, defense spending in California has again sharply declined as a percent of the state's economy.
Although the decline in the 1970s was sharper, it was offset to a greater degree by strength in other sectors of the economy than has been the case currently. Thus, declining defense spending has been a major drag on the state's economic performance.
Defense Cutbacks Have Had Dramatic Effects
The recent cuts in federal defense spending have triggered major cutbacks in related employment areas, especially aerospace. The number of aerospace jobs in California has been declining since 1986. However, the decline has been most severe since 1990. There were 337,000 aerospace jobs in 1990 compared to 191,000 in 1994, a decline of nearly 45 percent. Additional job losses will be occurring in future years as federal cutbacks continue and work their way into the state's economy.
XI
Concerning the 2001 recession, from the LA Times, the nation recovery began no later than a year from its onset, whereas more than two years later, California was still mired in recession (i.e., not leading the country's recovery, but lagging it).
Archive for Thursday, June 05, 2003
California Remains in Grip of Recession
By Marla Dickerson
June 05, 2003 in print edition C-1
California is still mired in recession, according to UCLA analysts who downgraded their already low expectations for the state economy in a forecast to be released today.
Statewide job growth is anticipated to be a mere 0.4% in 2003, down from the anemic 0.7% predicted earlier this year, translating to roughly 45,000 fewer new jobs than had been projected, according to the quarterly UCLA Anderson Forecast. Taxable sales and personal income, critical revenue sources for the state, also are estimated to come in lower than had been expected this year as well as in 2004.
Though the downward revisions aren’t radical, they underscore a nagging weakness in the economy that has surprised many analysts, including those at UCLA, whose recent state and national forecasts have been among the most pessimistic and accurate. The revisions also highlight the challenges facing state lawmakers, who are banking on a rebound to help close a huge budget gap.
The UCLA forecast says the recession probably will end in the third quarter of this year. The forecasters define recession as successive months of declines in nonfarm employment, which California has experienced so far in 2003.
“The economy is still really lackluster,” said Tom Lieser, senior economist with the UCLA Anderson Forecast. “It’s going to take more time to work out of this than we thought.”
Southern California has held its own during the downturn, Lieser said, but the Bay Area’s slumping technology sector continues to weigh heavily on the state economy. That region is still shedding jobs more than two years after the Internet bubble burst and business spending on computers and other high-tech equipment collapsed. Santa Clara County, the center of Silicon Valley, alone has lost 193,300 jobs, or 18.1% of its nonfarm payrolls, since employment peaked in December 2000. Many of the region’s high-tech manufacturers have shifted some production offshore to cut costs, which will limit the Bay Area’s job gains even when business spending recovers.
Employment is a lagging indicator, as companies typically wait to see a sustained uptick in new orders before committing to adding workers. Still, Lieser and other economists had expected California’s job market to be showing some stirrings of life by now. Instead, Golden State employers have cut their payrolls in four of the last five months.
The UCLA forecast predicts that more job losses in Northern California, coupled with only modest employment growth in the rest of the state, will limit the statewide payroll gains to 0.4% this year and 1.8% in 2004. While that’s slightly better than the growth projections for the nation, Lieser said, the gains won’t be enough to drive down California’s unemployment rate, which will remain “stubbornly high” near the current rate of 6.7%, well into next year.
XI
Post a Comment