California Solves Its Budget Crisis; Sort Of

California has come up with a plan to kick the can down the road. Of course, it’s being trumpeted as a solution to the current state financial crisis. I’ll let you be the judge.

From the WSJ:

Gov. Arnold Schwarzenegger and California legislative leaders Monday said they reached a compromise to close the state’s $26 billion budget shortfall.

Under the plan, state lawmakers would cut $15 billion in spending. The rest of the gap would be filled by taking funds from local governments and through one-time fixes and accounting maneuvers. The deal must still be approved by rank-and-file legislators, who are expected to vote on it Thursday.

“We have accomplished a lot in this budget,” Mr. Schwarzenegger told reporters after lawmakers struck the deal Monday evening. “We dealt with the entire $26 billion deficit,” he said.

The nation’s most populous state faces a $26 billion gap in a $92 billion general-fund budget through June 2010. Mr. Schwarzenegger and legislators have been wrestling over the budget for weeks, forcing the state’s chief accountant to issue IOUs to many creditors, including some welfare recipients.

The details are a bit scanty right now but here’s how they plan to pull off this alchemy.

They plan to cut expenditures by $15 billion. Education gets whacked for $9 billion, state workers cough up another $1.3 billion through furloughs (essentially a salary reduction) and the prison system loses $1.2 billion. Now I know that only amounts to $11.5 billion but that’s all the article talks about. Let’s just put that trifling $3.5 billion in spending cuts under miscellaneous for the time being.

And what about the remaining $11 billion you ask?

Well, there isn’t a lot of detail except that local governments are going to lose $4.3 billion as the state “borrows” from them or diverts their funds elsewhere. Yeah, we are short $6.7 billion in what the pols call “sharing the pain” so I guess we have to wait to see who gets screwed.

I don’t want to get critical yet. A few more details first, but this has the smell of temporary fixes that get undone at the first hint of an upturn. I don’t see anything so far that indicates any really hard, long-term changes have been incorporated in this plan. And cramming down the local governments is the cowards way out. Make it look like the state has taken care of its problems and let the politicians at the next level down take it in the neck.

I’m beginning to think that we do need a depression to really change anything in this country.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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