Free Markets, Free People

California

California Bailout – Not Only “No”, But “Hell No”

I wondered why Arnie was recently extolling the virtues of all things Obama and telling us what a super  job he’s been doing.  It’s about the only transparent thing I’ve seen out of anything to do with government this entire last year:

Facing a budget deficit of more than $20 billion, Gov. Arnold Schwarzenegger is expected to call for deep reductions in already suffering local mass transit programs, renew his push to expand oil drilling off the Santa Barbara coast and appeal to Washington for billions of dollars in federal help, according to state officials and lobbyists familiar with the plan.

If Washington does not provide roughly $8 billion in new aid for the state, the governor threatens to severely cut back — if not eliminate — CalWORKS, the state’s main welfare program; the In-Home Health Care Services program for the disabled and elderly poor, and two tax breaks for large corporations recently approved by the Legislature, the officials said.

Tough beans. California spent its way into this deficit mess, it can cut spending to work its way out of the mess. Joe Sixpack in New Jersey has no responsibility for the profligate tofu eaters in the California legislature that have gotten the “Golden State” in the fiscal shape in now enjoys. And Joe shouldn’t be stuck with bailing them out. Joe’s state has problems of its own.

It is about time that fiscal reality began to dawn not only at a federal level, but at state levels as well. And that means living within a budget and keeping it balanced, just like millions of Americans are required to do on a daily basis. The fact that California has lived beyond its means doesn’t mean the taxpayer, via the federal government, is there to solve the problem when California can’t afford its profligacy anymore.

Bailing out California would also set a horrible precedent.  49 other states facing cuts in services or getting a hand out are going to be in line demanding theirs.  Whether it is 8 billion, 80 billion or 800 billion, the federal government has no business sending money it doesn’t have to a state that so poorly managed its finances. This was the state that was built on liberal ideas. Now they have to face the reality that those ideas cost real money. Money they don’t have. Let them figure it out and live with the results.

And Democrats, if you do decide to bail them out, you’re just adding a another deeply etched line to your electoral tombstone in 2010.

~McQ

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Interview with Tom Campbell, CA Gubernatorial candidate

I spoke with Tom Campbell for over 45 minutes on a range of topics, and I’ve split my posts on that discussion into two posts, one here and one over at The Next Right. Here at QandO, I’m going to cover the more policy-oriented topics, and over at The Next Right the topics have to do with new media, elections, and the politics of fiscal conservative governance.

It pains me to see my native California in such dire straits. The state is broke, farms are collapsing, and unemployment is over 12 percent. The public colleges that might help retrain a lot of those workers are slashing classes.

The tax and regulatory burden has finally overcome the state’s many natural advantages, leading its citizens to abandon the Golden State. And these are people who can’t be having an easy time selling their homes: California, one of the first to suffer in the real estate collapse, is still near the top of the heap in foreclosures.

California, as we say, has issues. I talked with Tom Campbell about some of the most important ones: the budget deficit, jobs, health care, education, water and infrastructure.

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CA Bans Mail Order Ammo Sales

California Gov. Arnold Schwartzenegger did not sign, but did not veto, AB962, the Mail Order Ammo Ban.  Since California has no pocket veto, that means the bill becomes law without his signature.

This means that, as of 1 Feb 2011, all handgun ammunition sales in California will require a face-to-face transaction between buyer and seller, and sellers will have to obtain a thumbprint and other data from the buyer.

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California Chutzpa

The disaster that is California government has now turned into the theater of the absurd:

Small businesses that received $682 million in IOUs from the state say California expects them to pay taxes on the worthless scraps of paper, but refuses to accept its own IOUs to pay debts or taxes.

The vendors have filed a federal class-action lawsuit. But the depth that government will stoop too to collect revenue never surprises me. With housing prices crashing everywhere, local governments continued to try to collect at the same value rates as before or, in some places, actually raise the taxes.

And here we have California issuing, what to this point are absolutely valueless promises to pay – maybe – and then expecting those in receipt of those worthless bits of script to treat them as real money and to pay taxes on the amount in real money.

The onions it takes to make that sort of demand is just breathtaking. Or perhaps arrogance is a better word. But regardless it is just a stunning thing to behold.

And, as an aside, you can’t help but wonder what California will pay the lawyers it hire to defend its indefensible demand. As a further aside, it wouldn’t surprise me at all to see the court find in the state’s favor.

~McQ

U.S. Spurns Aid To California. Really?

In one of those “make sure you read the whole article” stories in the Washington Post, it begins like this:

The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy — the state of California.

Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching “fiscal meltdown” caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California’s fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states.

If you read no further than that, you’d probably think, “thank goodness, a modicum of sanity has returned to the federal government”. It is California’s mess and California, along with the other states, need to learn a hard but necessary fiscal lesson here.

But, while perfectly correct in your assessment, you’d be wrong to think that the present rejection is final. Buried a few paragraphs down is this:

These policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions.

I’m sure he or she didn’t. This is another Geithner plan based in the premise that California is “too big to fail” – the 8th biggest economy in the world and its failure would slow down the economic recovery of the US.

Given that inclination on the part of Geithner, it would appear that nothing has been learned from the Chrysler and GM bailouts, failure and eventual bankruptcies. Granted, California’s “failure” would be quite a bit larger than those two, but haven’t we yet learned that propping up a unsustainable business or government model just doesn’t work?

While it may be painful for both California and the US, nothing changes in California unless massive cuts and changes are made in that government. And, as has been evident to even the most tuned out of constituents, the California government model has been unsustainable for over a decade.

Naturally, California wants to characterize their plight in the way that will appeal the most to the emotions:

“After June 15th, every day of inaction jeopardizes our state’s solvency and our ability to pay schools and teachers and to keep hospitals and ERs open,” Gov. Arnold Schwarzenegger (R) said Friday.

But the hard fact remains that the solvency of all those institutions are in jeopardy with or without a bailout. We’re simply talking about how long we want to extend the problem not how to solve it. Solutions mean massive cuts in government spending and resultant reductions in government services. Or said another way, California is finally going to have to live within its means or fail.

That’s not a condition the rest of the taxpayers in this country brought about, and it certainly isn’t one they should be on the hook to “bailout”. And that goes for every other state in that condition as well (see the article and its mention of how Treasury is thinking about doing something with auto suppliers in Michigan – is that the job of Treasury).

~McQ

There Is A Solution

Although many people don’t want to hear it.

Arnold Schwarzenegger on the situation in California:

“People come up to me all the time, pleading ‘governor, please don’t cut my program,'” he said. “They tell me how the cuts will affect them and their loved ones. I see the pain in their eyes and hear the fear in their voice. It’s an awful feeling. But we have no choice.

“Our wallet is empty. Our bank is closed. Our credit is dried up.”

Then. Cut. Spending.

For real this time.

~McQ

So Will The Federal Government Bail Out California?

Is it too big to fail? Megan McArdle believes the possibility certainly exists (I mean was Arnie really in DC yesterday just to see the sights). Says McArdle:

If the government does bail out the muni bond market, how should it go about things? The initial assumption is that they’ll only guarantee existing debt. Otherwise, it would be like handing the keys to the treasury to every mayor, county board, and state legislature, and telling them to go to town.

But once the treasury has bailed out a single state, there will be a strongly implied guarantee on all such debt. So you don’t give them the keys to the vaults, but you do leave a window open, point out where the money’s kept, and casually mention that you’ve given the armed guards the week off.

Of course the right answer is not to bail out either. Failure is a great teacher. And then there’s the moral hazzard angle.

But in this day and age, that’s approach is almost unthinkable apparently. Government, as we’re being told, is the answer to everything.

My fear, based on what the federal government has done to this point, is they’ll “hand the keys to the treasury” on both the muni bond market and the states (with bailouts). They have no business doing anything in either place, but we’ve already seen that the arbitrary assessment that some entity is too big to fail apparently takes priority over economic law.

Once a single state is bailed out, there is nothing to stop other states from making a similar claim on the treasury.

Should such a thing happen in either case (or both), Federalism, which is on its last legs anyway, will be officially dead.

~McQ

Meanwhile In California …

The expected happened:

California voters soundly rejected a package of ballot measures Tuesday that would have reduced the state’s projected budget deficit of $21.3 billion to something slightly less overwhelming: $15.4 billion.

The defeat of the measures means that Gov. Arnold Schwarzenegger and the state Legislature will have to consider deeper cuts to education, public safety, and health and human services, officials have said.

Propositions 1A through 1E – which would have changed the state’s budgeting system, ensured money to schools in future years and generated billions of dollars of revenue for the state’s general fund – fell well behind in early returns and never recovered.

The only measure that voters approved was Proposition 1F, which will freeze salaries of top state officials, including lawmakers and the governor, during tough budget years.

Schwarzenegger, however, still doesn’t get it:

In a written statement Tuesday night, Schwarzenegger said that he believes Californians are simply frustrated with the state’s dysfunctional budget system.

“Now we must move forward from this point to begin to address our fiscal crisis with constructive solutions,” the governor said.

In reality it has nothing especially to do with the state’s “dysfunctional budget system”, but instead with the state’s profligate spending which has landed it in overwhelming debt. And the most “constructive solutions” would be to – wait for it – cut spending.

Why is it I have a feeling that such a solution will be mostly absent from whatever CA legislators come up with?

~McQ