California 2010 Looks Grim

The global economy and even the U.S. economy may be recovering, but 2010 looks grim for California. It is difficult for a state with a $20 billion projected budget deficit to pull itself out of a recession. Even as some California businesses are gearing up exports to China and India, the public service sector will be seeing major cutbacks.

Unlike the federal government, the State of California can't just borrow money during recessions to see it through. It borrows too much money all the time anyway, in the form of bonds. But the real problem is a lack of long-term budget planning. The Democrats and Republicans in Sacramento, pawns of their respective corrupt party regimes, can't even do a single year's budget on time.

The seeming prosperity of California from 2002 until 2006 came in a form that was particularly misleading to those responsible for budgets. Let's imagine what it is like to be a California Assembly (or State Senate) member in California. You raised a lot of money to win the election, and owe a lot of people favors. Normally you would need to dampen post-election expectations. But in good tax years, you can take a lot of the pressure off yourself by spending every cent that comes in, and providing whatever tax loopholes your donors demand. Better still, be optimistic. If tax revenues went up in 2005, plan for them to go up in 2006, 2007, 2008, 2009 ...

But California's economy was not really producing much more in real goods and services in 2006 (the last great tax year) than it was in 2002. The increase in taxes was largely due to the real-estate frenzy. Under Proposition 13, if you stay in your home property taxes stay low. But if you buy a new home, taxes are based on the sales price. So when real-estate changed hands in 2005 and 2006, there was a windfall in real-estate taxes. The assumption is that once a house is set at a high tax rate, it will stay there (with modest annual increases) until it is sold again, at an even higher price. Bad assumption.

I was on the Point Arena School Board in 2005 and 2006 and our revenues were increasing 8% to 10% a year. The Superintendent loved it. He could give more money to the teachers without having to cut back in other areas. I said we should be more careful, paying out any surplus in bonuses instead of raises, because it is really hard to take back a raise. In my experience teachers unions prefer layoffs to pay cutbacks. Which hurts the kids. I did not believe we could rely on 10% budget increases on an annual basis. I was right, of course, but no one was much interested in my arguments in 2005. I like to think I made my district more fiscally conservative than many other districts, but in retrospect we were spending wildly and the district did run into a crunch when the bubble burst.

Public employees and welfare recipients are the people most affected by the state budget crisis. But they really need to understand that what they were given in the middle of the decade was a mistake, it was based on an illusion, it was a standard of living that was not sustainable. Those who have been laid off (private and public sector) have paid for the mistake for all of us. It isn't fair. We should all share some of the pain, and we all need to work more effectively when we do work. Unless we want to become a third-world economy going forward.

The place where we should be able to find the most savings is prisons. Aside from the common observation that prison guard salaries are outrageously high, we need to admit that our lock-them-away system is an economic disaster. I believe that for most criminals shorter sentences consistently applied have a strong deterent effect. I also believe that crime intervention programs among high school students are the most economically effective way to cut crime. Most kids will do the right thing if given the right guidance, support, and a job. In addition, we need to bring most black market economies into the legitimate economy. Black markets create super-profits that can be used to lure youths (and adults) into crime.

I don't expect much to change. Every incumbent should be thrown out, but most voters will just elect the same old people. They know there was a train wreck in Sacramento, but they don't understand how their own incumbent was part of the train wreck. Almost the only changes will be when the incumbents are term-limited out, and even then the party machines will just promote the same corrupt types up through their primaries.

Probably there will be a Democrat elected governor this year, and it will probably be Jerry Brown. And he will face the same realities Schwartzenegger has faced lately. Except the economy might be more on the mend by the time he takes over in 2011.

When a computer is filled with crap, with viruses and trojans and even otherwise harmless programs that just run in the background taking up memory and CPU time, at some point if you want to use the computer you need to clean it out and reboot it. California desperately needs a reboot, but even Hercules would be bewildered by the amount of crap that needs to be cleaned out.