CALIFORNIA'S BUDGET CRISIS
California's budget crisis hasn't gone away just because the legislature passed a budget and there's a recall election underway. Former state controller Kathleen Connell, who ought to be the next Democratic governor, lays out the ugly facts in a San Francisco Chronicle oped:
While we're off being entertained by recall theater, the perfect economic storm may soon hit the shores of California. It turns out that the recently passed state budget isn't much of a budget at all. It's the equivalent of you and me sitting down at the dinner table and figuring out which credit card we should use to buy groceries and pay the rent.
The state budget features at least $18 billion in borrowing this year. And since California's credit rating is the second-worst in the nation's history, taxpayers will pay enormous interest rates on the state's looming credit card charges. But if that's not enough, some of the borrowing may actually be illegal.
The Howard Jarvis Taxpayers Association has a Sept. 17 court date to challenge the state's use of $2 billion in bonds to pay its contribution to the retirement system. Other groups are considering lawsuits to block the sale of more than $10 billion in deficit bonds because Californians did not vote on the bonds, as required by the constitution.
If courts do block California from selling the bonds, things will get very ugly, very quickly, because there isn't a backup plan and there isn't much cash on hand. Schools, Medicare, law enforcement, recreation activities, and just about everything else -- will be immediately reduced, and the quality of such services will predictably suffer.
If the state does manage to sell the bonds, the recall winner will inherit a budget with an estimated deficit of $10 billion to $20 billion next year, plus all the debt the state has already piled up.
Pretty scary stuff. When Connell used to warn of budget trouble ahead, Gray Davis mocked her. Picking up on an idea from the Reason Foundation and Performance Institute budget plan (one of the few with actual details), she advocates a budget commission modeled on the federal base-closing commission. If you're following California politics, you should read the whole thing. The Reason Foundation/Performance Institute commission plan, to which Connell is a signatory, is here, as a .pdf file.