A Review of the California Economy June 2010

First let me say welcome to 2010. "Hi 2010, thanks for trying to be better than 2009."

For those of you that read my blog you will remember that in Nov. 2008, I wrote a quick review of the state of the flailing California economy. I wanted to give a quick update. As you can see the predicted 2010 deficit that was estimated to be $28 Billion dollars. According to current figures the actual Gap is at about $20 Billion. I am not sure if this was supposed to be at the onset or end of 2010 but we are close. Keep in mind that this is happening at a time when the Federal Government is saying that the Stimulus Package has "worked" and while they may say this, Californians are about to be hit harder than they think. In fact the State it self is still has quite a bit of money out there in IOUs;

More than 89,000 people and businesses who received IOUs last year as California stopped paying its bills during the summer budget crunch still haven’t cashed in on the more than $50 million they are owed.

This $20 Billion gap is too large to actually fathom. The governor seems to think that he has a plan to solve this situation with cuts and federal aid.

“I know many of these cuts are painful,” Mr. Schwarzenegger said at a news conference in Sacramento. “Believe me, these are the hardest decisions a governor has to make. Yet there is simply no conceivable way to avoid more cuts and more pain.”

For instance, Mr. Schwarzenegger chose not to cut financing for public universities, but has proposed eliminating the state’s $1 billion welfare program for families with children, ending a $126 million health insurance program for children, reducing the state’s Medicaid eligibility to the minimum to save over $500 million...

The ramifications of this are scary. What happens to those families when the rug is cut from out of them? Think about how many people will be set adrift. Think about how many families are going to be hurt by this and think about how, odds are, the State will have to find a way to help them through other means such as higher rates of emergency care and shelters.

He even proposed a strange economic "juggle" of various gas taxes. Where the excise tax would go up and the tax at the pump went down. I see this as a placation; sure most people getting gas will see "oh, I am paying less" eventually the cost will come back down to us. This is not a long term solution. So far I have yet to see a real long-term solution to this problem. But he seems to have taken away furloughs which has been seen as a forces pay cut and met with frustration from state worker's across the board.

Mr. Schwarzenegger also proposed ending the furloughs for state workers, which were begun last year by the administration and were overturned in part in court battles waged by some unions. In their place, the governor said that he would like to see 5 percent pay reductions across the board, and that he wanted state employees to contribute an additional 5 percent toward their retirement costs.

This plan doesn't seem to be a palatable one for most state workers who, until recently, expected security and pay raises. This was the norm and, speaking as a former state worker, the pay wasn't that good. It was really the job security and benefits that were attractive to job. This will hurt our system more than expected. I predict some major failings in the basic aspects of the State because of unhappy employees.

The Governor also seems to think that California can expect money from the federal government, about $7 billion. That means that he expects to get at LEAST $13 Billion in cuts that is coming on the tail end of the last budget cycle which saw tens of billions of dollars in cuts and tax increases. This includes the travesty of the essential shutting down of the Beverage Container Recycling Fund.

Most reputable new sources believe that we will not get these funds will either be hard to come by or non-existent.

The way Schwarzenegger has been going about it seems to be a bit whiny. To use a term of his, he sounds like a "whiny girly man."

In his budget plan and his State of the State address, Schwarzenegger attacked the federal health care overhaul and blamed Washington for not paying California its fair share in reimbursements and for overburdening the state with Medicaid regulations. Feinstein said in return, "California's budget crisis was created in Sacramento, not Washington."

According to this same article, the Governor has sent multiple letters to the California Delegation of Congress complaining of the unfair treatment of California regarding how much money we see. Within these letters he quotes Boxer and Feinstein vying for more money for the State. He also sends retaliatory notes seemingly directed at Boxer and other members of congress. This should come as no surprise based on some of his past actions, but it is not the way to advocate for our State. It has become such a problem that State Legislators have started to worry about their D.C. trip next week when delegates will approach Federal Representatives to Advocate for aid.

"We in the Legislature are used to that kind of talk from the governor,” Assembly Speaker Karen Bass said Tuesday. “I think we’ve built a good working relationship with our congressional delegation and the (Obama) administration, and I’m not sure why the governor would come in throwing punches at the people you want to help you.”

In fact, some say that there is no possibility of getting the near $7 Billion number that the Governor is expecting, partially because of this behavior.

California has an "almost non- existent" chance of reaping a $6.9 billion windfall from Washington, D.C. to reduce its deficit, nonpartisan Legislative Analyst Mac Taylor said Tuesday in his initial budget review.

The Legislative Analyst's Office(LAO) is highly regarded and trusted. So when a member of their office gives a report estimating at a "high estimate" of what the State is set to receive at $3 Billion - less than half what the Governor expects to make his economic plan feasible - it is time to take notice. The State is in trouble. We went from having one of the best education systems in the country to one of the worst We are at 49th out of 50th in states where the adult population has at least a high school education. This is unacceptable. Our economy and our people are suffering. Now is not the time for petty bickering and biting the hands that could possibly feed thousands.

I now want to point the direction of the conversation to money making. It is possible that marijuana may become legalized in the State of California. I am not talking about solely medical, but recreational for users 21 and up. If the bill passes (odds are it will see no more real action till next year) the state will be able to see swiftly upturning revenues as a result of taxing this newly legalized product.

It is estimated that the proposed $50 tax on each ounce of marijuana sold, along with license fees charged to cultivators, would generate $1.3 billion a year to be used to pay for drug education and treatment.

Imagine if the first 2 years of revenue from this bill actually went to paying off our debts? While this is not the $20 Billion we need, it is a start. Currently Medicinal Marijuana taxes are proving to be a huge "cash cow" for California and we need to examine the possibilities of this.

For those who are paying attention we need to look at the recent occurrences at the Prop. 8 trials. The U.S. Federal Court has started hearing the case to rule on Same-Sex Marriages and there are various sites and "live-blogs" to track this momentous occasion since the high court has decided to ban Television Stations and Youtube from the courtroom.

Something interesting should be brought to Caliornia's attention that was mentioned when Prop. 8 was first being voted on; Same-Sex marriage would bring in huge money for the state;

...same-sex weddings would generate more than $35 million in annual spending in San Francisco and produce millions of dollars in additional tax revenue... Edmund Egan, chief economist for the city and county of San Francisco, said he based his short-term projections on the revenue generated by more than 5,000 same-sex weddings in San Francisco during the five months in 2008 when gay marriage was legal.

So, what law makers have to here is come up with real, long term solutions instead of the shifty "legally dubious" budgets that borrow from sucessful programs and only work for the short term. We need to bring out State out of the fire and back to the greatness that we once had. We need to invest in growth and be creative. Perhaps legalizing marijuana and same-sex marriages to bring in new sources of revenue is what we need. For now, all I can say is that the people of California are upset and the ripples of this situation are going to be felt, in one way or annother, for a very long time.