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Should Uncle Sam Bailout California?

Posted by Larry Doyle on January 7, 2010 8:07 AM |

Should 49 states bail out one? Should the American public be compelled to cover the fiscal disaster of our largest state? Will America ever face reality?

The ticking time bomb that is the fiscal disaster of the state of California is making its way to Washington. As reported in yesterday’s Wall Street Journal, the Governator Arnold Schwarzenegger Seeks U.S. Funds. If Uncle Sam bails out California, then who is next?

Not surprisingly, the general media is not giving this story even close to the attention it deserves. I wrote extensively on this ticking time bomb last spring and summer. Tick…tick…tick. The fuse is running short.

Let’s quickly review some general statistics about the state on our Left Coast (in more ways than one). As I highlighted last May in writing “As California’s Economy Goes, So Goes the Country,” California has:

– 8 of the 50 largest cities

– population of approximately 37 million people (that we know of), a full 12% of our national population

– an economy similar in size to Italy, ranking it as one of the top 10 in the world (I have seen rankings of 8th and 9th)

– California’s economic output represents 13% of our national GDP!!

– an unemployment rate north of 11% compared to the national average of 8.9%. With a high unemployment rate amongst illegal immigrants, it is not a stretch that California’s unemployment rate is approaching 15% and its underemployment rate is greater than 20%!! (LD’s edit, the current rate is 12.3%).

What is Schwarzenegger’s case? The WSJ reports:

“The federal government is part of our budget problem,” the Republican governor said in his annual State of the State address, reiterating a longstanding complaint that California sends far more money to Washington than it receives in return. Mr. Schwarzenegger also said federally mandated spending of state money has further strained California’s coffers.

“We no longer can ignore what is owed to us,” he said, adding that Washington owes the state billions of dollars for various programs. He criticized elements of congressional proposals to overhaul the health-care system, saying California could be saddled with billions of dollars of additional annual spending.

What state couldn’t or wouldn’t make the same assessment? California is a fiscal disaster as a result of massive mismanagement across a wide array of programs for a number of years. Are the hard working, fiscally prudent residents of other states supposed to bail out the wayward left coast?

If  Washington craters to California, then who is next? Each and every state will be lining up for a handout. Who bails out Uncle Sam? The People’s Republic of China? What do you think that will cost?

When will this madness end?

How do you feel about bailing out California? Please let me know what state you are from and whether you support providing bailout money for California.

I’ll start. I’m from Connecticut. No way!!

LD

  • Southie

    LD,

    Great read. Perhaps we can all ask the great state of South Dakota to bail out the rest of the nation. Do you think that might work for them?

    How about Montana?

    I’m from The People’s Republic of Massachusetts. Socialism does not seem to bother a lot of people up here but it rubs me the wrong way.

    Bailout California?

    I’d rather become a Yankee fan.

  • Fed Up

    Trying to make ends meet here in Nebraska. How about we just let California secede. Why should my tax dollars bail out the likes of Nancy Pelosi, Barbara Boxer, Dianne Feinstein…et al.

    Close the border!!

  • Sader98

    Things aren’t much better here in the Empire State. Your piece on “smoothies” made me chuckle as NY is in for a serious problem in the next 5 years.

    Thousands of “boomers” are set to retire from teaching, the state, police, fire, etc. in that time frame and enter the retirement system. The pension system here requires that any real loss of equity from the state pension fund is to be made up by the taxpayers.

    At 31 and a recent homeowner I pay $11,000 a year in property taxes; and my home is less than 2,400 sq. feet. What are we to do here in NY? Many of my friends are moving out to tax friendly states like Texas, Tennessee, Florida and North Carolina. Many of the new people moving in are lacking to make up the intellect and capital we are losing.

    I say states like NY and California need to start competing like these other states for people and businesses to move there. NY and California have become nanny states trying to pander to every need a citizen could have – the only problem is that there is a cost associated. As many wise economists have noted, there really is no such thing as a free lunch.

    As for California, they should just make the drug trade legal and tax it to no end; short of that I don’t see a way out for them and NY isn’t far behind.

    Happy New Year!

    • Larry Doyle

      Sad to think that legalizing drugs may very well be a short term answer to a long term problem. The thought of zombies high on dope probably is not all that far off from what is the reality in certain locales already.

      Thanks for the insights about the demographics and tax situation in New York. Very interesting.

  • Hook ’em Horns

    Bailout California? Are you kidding me?

    Get ready for a fight like this country has never seen before.

    Tea Parties? Try Tea Revolutions…

    Don’t mess with Texas.

    • Sader98

      I agree; there is going to be a revolt sooner than later.

      And I also agree one shouldn’t mess with Texas….

      BUT….

      I wouldn’t bet on the horns tonight! Roll tide roll!!

  • sunup

    I cannot believe the citizens of my state voted twice for Schwarzenegger. Give him the key to US Treasury and we would be broke again in 6 months.So bail out Califormia?. Never! Seems every politician in this State has a serious case of spinlessness and spenditis. Umemployment,taxation,illegeal immigration to name a few are all out of control.
    We need someone with principal, leadership skills and a backbone. The Terminator is sadly lacking in these areas.

  • Live Free or Die

    New Hampshire made its name on standing up for its independence. In the spirit of General John Stark, bailout California, I don’t think so.

    If Washington caves on this, Canada never looked so good.

  • Mike

    They’re gonna have to legalize marijuana.

    Bout time!!!

  • Randy

    I have been a Californian my entire 60 years. While it is clear California is in desperate need of money from somewhere, if it is provided by any outside source then our state politicians will never learn the necessity of cutting spending and living within a budget as we each have had to learn to do our entire lives. Granting them a federal bailout will result in them simply squandering the windfall and needing a secondary bailout to follow.

    Having said all that, I have read believable articles that indicate at least 28 other states are not far behind. That right there should be sufficient reason to rule out the entire idea.

    It is more than just likely that this country will be in rather desperate financial straits for the next 7 to 10 years. Most people don’t want to accept that but I believe it is likely going to be our lot in life as as deflation, followed by inflation are compounded even further by a growing federal government that is fully committed to re-inflating the asset bubbles as the only way they can think of to temporarily stem the tide and give the public the appearance they are doing enough to keep their jobs.

    If ever I considered our economy fragile, this is the time and current government actions are leading me to believe that there’s little left but a house of cards that could collapse as soon as enough people see it for what it really is. Absent some unbelievable technological breakthroughs, etc. that put large segments of our population back to work in the next year or two, we are all going to be in a long term world of hurt, financially for quite some period to come. And, if you were planning to escape to some other country where you can avoid much of this, you may be a wee bit late as I am reasonably certain they are going to pass legislation imposing such exhorbitant taxes and fees on your net worth as to make it quite prohibitve to move forward with such plans in the near future.

  • Show Me

    LD,

    Living in Missouri, I can tell you that I have never felt more disconnected from developments on Wall street and Washington.

    I have worked my tail off to live well within my means for my entire life. I am anything but well off but we get by. This crowd in California thinks they’re taking my tax dollars to bail out a misguided liberal agenda that has bankrupted them.

    I’ll show them bail out. My recommendation is they jump into the Pacific Ocean in a small rowboat, keep paddling until they get somewhere and start bailing if need be.

  • Bill

    Just more enablement of a dysfunctional
    societal system–i. e. expensive
    government run for the benefit of the
    public employees and their unions.
    Someone did an analysis that the excess
    tax receipts of CA compared with states
    such as TX all go to the benefit of the
    public union employees and do not result
    in any better government services.

  • coe

    As a resident of the Empire State, I can hear the same time bomb ticking at both the State and County levels. Decades of bloated expenditures related to patronage, pork, entitlements, social services, and ineffective schools will do that every time. The tricky subject to deal with is the education budget, for if we don’t improve this critical need, then we really are mortgaging our future. But that needs to be addressed without throwing money at it, but rather, taking lots away. Trust me, though, as a former Budget Officer, there are plenty of non-critical cuts there to be had. Is it time to go back to the “Zero-Based Budgets” of Jimmy Carter, or should we hire Robert Klein to do a rework of the movie “Dave” in which he found a way to cut the national budget to save a homeless program? The idea of a State bailout is mind-boggling. Where is Felix Rohatyn when you need him?

  • Matt

    Hi Larry –

    Here is an article on how the state of Illinois is pretty much in as bad of shape right now as California is. Aren’t New York, Nevada, and several other states also very close behind? This is a major problem that is clearly continuing to get worse. What is going to happen with all of these states? This will be very interesting and historic to see how this all plays out.

    http://www.chicagobusiness.com/cgi-bin/mag/article.pl?articleId=32910&seenIt=1

    Matt

    • Larry Doyle

      Matt,

      Thanks as always for these links. What will happen? I would envision a number of things, including:

      1. Inevitable ongoing cuts in services.
      2. Inevitable increases in taxes.
      3. The third thing that may occur is the backdoor funneling of funds and other means of financial support from Washington. Effectively buying favors, much like what occurred on a very egregious level with LA and NE with this healthcare reform. What else is for sale? Stick it to the next generation and balloon the federal deficit in the process. Who will keep them accountable?

      Today does have the chance to be a truly historic day. Democrats are getting very defensive. I view the vote in MA as ultimately a referendum on Washington as much as it is a referendum on the Obama administration.






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