$167 - $335 Billion in the Red
When Jerry Brown Brown whisked into the Governor’s Office he gave us the glum news we already knew: we
were $28 billion in arrears.
Now it turns out the State’s real red ink is far worse than any of us could have known.
The estimate revealed by one blue ribbon commission is, at the very least, shocking.
On Thursday, the State Budget Crisis Task Force released a report estimating that California’s “debt wall” is at least $167 billion and as much as $335 billion, much more than previously projected by state officials, the New York Times reported yesterday.
According to the Times, a spokesman for Governor Brown “did not dispute the report but said the governor was making progress in his effort to restore fiscal balance.”
We’re glad he’s making progress, but the Governor didn’t exactly dispute those disturbing Task Force figures, either.
The Task Force was created last year and charged with analyzing the budgets of six states (California, Illinois, New York, Texas, Virginia and New Jersey). It was founded by Paul A. Volcker, a former Federal Reserve chairman, and Richard Ravitch, a former New York lieutenant governor, out of “deep fiscal concern for these states receiving insufficient attention in Washington.”
California was chosen by the Task Force because it constitutes the world’s ninth-largest economy and is having more than its share of “intractable fiscal problems.” The Golden State has also experienced an unusual run of municipal bankruptcies in recent years.
Vallejo, San Bernardino, Mammoth Lakes, and Stockton all filed for bankruptcy protection. Three of the municipalities suffered under crushing pension obligations. Stockton, however, is planning a major surprise. It wants to walk away from the principal and interest owed on one of its bonds.
Analysts are watching California, and especially Stockton, closely. They’re troubled that should Stockton succeeds, other troubled cities in California and throughout the nation will follow suit. Some contend that the State of California should be doing more to keep its cities out of bankruptcy and shielding municipal bond investors.
Last year, Brown introduced the ‘Wall of Debt’ concept to encompass various forms of borrowing by the State over the past few years.
According to a Department of Finance report issued in July, the debt wall is $34.2 billion and would drop to $8.9 billion by the end of fiscal year 2015-2016 if voters pass a compromise tax hike plan in November.
The tax hike measure — listed as Proposition 30 on the ballot — would increase the personal income tax by one percentage point for individuals who earn $250,000 annually or couples who earn $500,000 annually, and by two percentage points for individuals who earn $300,000 annually or couples who earn $600,000 annually. It also would increase the sales tax by a quarter of a cent, among other changes.
State Budget Task Force researchers examined numerous debts that weren’t included in state projections, such as pledges to provide health care benefits and pensions for retired public workers.
They also cited unpaid bills from previous years in the new estimates.
Lo and behold– those figures, California’s true debt, add up to a way significant amount.
According to the Task Force, even if voters pass the compromise tax hike plan — which would provide the state with an additional $50 billion over the next seven years — the state’s debt wall still would exist from somewhere between $167 billion to $335 billion.
That’s a lot of billions. Like stars in Carl Sagan’s universe, it’s hard to fathom the unfathomable.
The Task Force didn’t provide concrete solutions but suggested two very brief policy recommendations:
It urged the State to ‘rethink‘ how it provides health care and
pension benefits for retired workers.
It also advised that California ‘develop‘ a two-year spending plan
to replace its annual plan.
* * * * * *
There’s a bit more, but in a nutshell, yeah and yup. It shows that if stupidity got us into this mess, it can get us out. Last year we said, ‘Things can’t go on like this’, and they didn’t. They got worse. Maybe we should be thankful we’re not getting all the government we paid for.
Fortunately California is still running, in spite of it.
We can suggest others: Retire early if you’re a municipal worker having milked it for all it’s worth. If you’re not so fortunate, make more dough. You’ll need it. Buy and rent property. Good renters are golden. Buy gold. It’s shiny, it glimmers, and other people want it. Go on a diet.
And move. Out of state.
Hundreds of billions of dollars IS a big deal. We don’t seem to be able to check debt, so why not legalize it and then tax it out of business?
(The New York Times and Will Rogers contributed to this article)