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California’s Budget Crisis: Welcome To The Hotel California

Posted by Larry Doyle on May 14, 2009 8:16 AM |

Welcome to the Hotel California
Such a lovely place
Such a lovely face
They’re living it up at the Hotel California
What a nice surprise
Bring your alibis

Is California preparing to invite Uncle Sam to this party to clean up the Sunshine State’s fiscal mess or at the very least provide a “letter of credit?” I wrote the other day, As California’s Economy Goes, So Goes The Country. Well, now Bloomberg reports, California Seeks U.S. Help With Record Borrowing For Budget Gap. How would Uncle Sam’s largesse be dispensed? Bloomberg offers:

California asked the U.S. Treasury for help with sales of short-term notes as the recession threatens to force the most-populous state to borrow as much as $23 billion to pay its bills.

The federal government should use the Troubled Asset Relief Program to buy the notes of any state that defaults, California Treasurer Bill Lockyer said in a letter to Treasury Secretary Timothy Geithner yesterday that was released by his office. A guarantee would make it easier for states to purchase the bond insurance policies they need to attract investors.

“If we cannot obtain our usual short-term cash flow borrowings there could be devastating impacts on the ability of the state or other governments to provide essential services to their citizens,” Lockyer said. “Such a scenario could also cause major disruption to financial markets.”

At what point do the occupants of the Hotel California come to realize that the “fiscal follies” come with a price? The beast in the form of runaway spending and ill-conceived programs now controls the state. Who within the hotel is willing to accept responsibility for this fiasco? Which representatives of the Hotel California in Washington (Pelosi, Feinstein, Boxer) will accept the reality of:

Mirrors on the ceiling, the pink champagne on ice
We’re all just prisoners here of our own device

Yes, California’s fiscal disaster is of its own device. Other states have not forced it to live beyond its means. If Uncle Sam does provide this backstop via the TARP, is the benevolent old man effectively enabling these wayward children to live in a profligate fashion? Can’t the residents of the Hotel California tame their fiscal monster amidst real debate, sacrifice, and prudent planning?

In the master’s chambers, they gathered for the feast
They stab it with their steely knives, but they just can’t kill the beast. 

Well, no surprise that the residents of the hotel will now impose upon a member of Uncle Sam’s contingent unfamiliar with the concept of fiscal discipline. As Bloomberg offers, in regard to the Treasurer of the Hotel California:

Lockyer has also spoken with U.S. House Financial Services Committee Chairman Barney Frank, who is working to get federal support for municipal debt. Lockyer, in his letter, said that debt guarantees through the TARP program would allow the state to get the credit lines it needs.

Meanwhile back at the hotel, many residents are actually looking to move out if and when they can. The prospect of moving from the Hotel California is not easy but there has been significant demographic transition from Hotel California to surrounding states for over the past decade. I would look for this to continue.

Last thing I remember, I was running for the door,
I had to find the passage back to the place I was before.


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