California has a gapping hole – their government is much too big and it is sucking the life blood out of the California economy. The budget situation is so bad that they have resorted to issuing I.O.U.’s and using accounting tricks in an attempt to do anything but the right thing which is to shrink the size of government.
Even after all their latest tricks, their latest attempts at establishing a sustainable budget are simply falling way short. It’s simple… you must spend less than you take in. That is true for your personal budget, it’s true for a business’s budget, and it’s true for all government budgets despite what idiot Keynesian twisting politicians think or say.
California Budget Is Already in the Red 10 Weeks After Passage
By William Selway and Michael B. Marois
Oct. 10 (Bloomberg) -- California Governor Arnold Schwarzenegger will know within a month whether a $1.1 billion drop in revenue collections is part of a growing budget shortfall or an isolated event, his budget spokesman said.
Revenue in the three months ended Sept. 30 was 5.3 percent less than assumed in the $85 billion annual budget, state controller John Chiang reported yesterday. Income tax receipts led the gap, as unemployment reached 12.2 percent in August.
“The culprit here appears to be estimated quarterly personal income tax statements,” H.D. Palmer, the governor’s budget spokesman, said yesterday. “The numbers are cause for concern, but the issue now for us is to determine if this is a one-time event or whether it has more long-term implications.”
The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing. Even with those actions, state budget officials predict an additional $38 billion in deficits in the next three fiscal years combined, including $7.4 billion in the year starting July 1.
Schwarzenegger must present a budget for the coming fiscal year in January. The state’s Franchise Tax Board will deliver new data to the governor in November.
The budget news comes as the most populous U.S. state prepares to sell as much as $15 billion of bonds in the next nine months to refinance debt and fund public-works projects, and as a surge in fixed-rate municipal issuance sent benchmark rates up by the most in almost four months.
California, already the largest borrower in the municipal market, may offer $4 billion of debt during the week of Oct. 26 to refinance the bonds used by Schwarzenegger to cover previous budget deficits. The budget enacted in July would allow the sale of as much as $11 billion more of general obligation bonds through the June 30 end of the fiscal year if financial markets allow, state Treasurer Bill Lockyer said. The exact sale amount hasn’t been decided.
“If the market is inhospitable, we won’t go,” Lockyer said in an interview yesterday. “We’ll just have to wait and see how the feelings are when we get ready to think about it again.”
Additional bond sales by California would follow an offering of $4.1 billion of general obligation bonds this week.
The state was forced to scale back the size of the deal by almost $400 million as benchmark yields surged. The yields climbed after gains in the tax-exempt market last week pushed them to a 42-year low.
California’s sale follows a two-month rally in municipal bond prices, fueled by a record flow of money into mutual funds that outweighed lingering fiscal strains on localities, said Craig Elder at Milwaukee-based Robert W. Baird & Co.
U.S. Treasuries also fell, sending two-year notes toward their first weekly loss since the period ended Sept. 18. Federal Reserve Chairman Ben S. Bernanke said the central bank is ready to tighten monetary policy once the outlook for the economy improves.
California, a state that’s been among the hardest hit by the recession, had already issued $22 billion of debt since March, including $8.8 billion of notes that provided the state with an advance on taxes collected next year.
Even after increasing what it would pay, California still borrowed more cheaply than during previous offerings. A taxable California bond maturing in 2039 yielded 7.23 percent this week, down from a yield of 7.43 percent during a sale in April.
“Everybody thinks there’s still an appetite for California bonds,” Lockyer said. “There’s certainly a continuing need for long-term investments in schools, high-speed rail, stem-cell research centers and so on.”
There is a limit to how much debt a government can “sell.” California is bumping up against that limit now (California Bond Issuance = FAIL ).
Interest rates begin to rise as “investors” begin to see the risk involved. If the risk becomes too high, they will simply stop showing up altogether and then the only solution left will be to either do the right thing and shrink the size of government, or to do the worst thing and that’s fall back on the lender of last resort, the Federal Government who is in worse shape than the State of California, the only difference being their ability to print money and to thus rob the American people of their productive efforts.
Printing money is not our government’s latest trick, it’s a time honored tradition that has brought down many governments throughout history…
Dire Straights – Your Latest Trick: