George Rebane

[This is the transcript of the 7jan11 broadcast of my regular bi-weekly commentary on KVMR-FM 85.9.] 

It’s no use pretending, 2011 in California will not be pretty.  The state’s voters bucked fiscal responsibility in November and returned the same gang to Sacramento that got us to the edge of bankruptcy.  And now with a new leftwing governor to lead them, we can expect the final chapter in the state’s fiscal failure to begin in earnest.

As the world’s 8th largest economy, California still cannot print its way out of the half trillion dollar obligations that it has run up just in public sector pensions.  Balancing its $100B budget is nowhere in sight.  Yearly deficits of at least $20B are projected by the state’s Legislative Analyst Office to continue through 2015.  And then what?

Biggs, Hassett, and Jensen of the American Enterprise Institute have done some noodling on how economies have sought to balance their budgets (here).  They based their work on historical data and numbers put out by the Congressional Budget Office.  Before looking at some details, the bottom line is simple – a balanced budget on both the federal and state level will require an almost 25% increase in all taxes and fees, and/or a compensating reduction in government expenditures.

Over the years different political jurisdictions, ranging from countries to states and provinces, have tried different ways of ‘consolidating’ these opposing policies.  The results have been striking and clear.  What has not worked is the perennial socialist solution of attempting to balance budgets through tax increases.  The alternative to that is to somehow consolidate increasing taxes with reducing expenditures.

But reducing expenditures is dangerous to your political health.  And now comes the perfect perfidy from our electeds in Sacramento.  These ideologues or public idiots, take your pick, know that their offices are bought and paid for by legions of unionized state workers and the soundbite voters at large.  It’s simply a matter of working with the numbers.

Entitlements and state employee wages are and have been the overwhelming cause of our budget overruns.  In California our politicians have stacked the pile of government bureaucracies to unheard of heights.  Last September I posted a piece on my blog that enumerated the then available list of California agencies, bureaus, commissions, and other wallet sucking units of government (here).  The list came to over 500 such outfits with names that will roll your eyes unless you happen to be employed by one of them.

So here’s what we can expect in 2011.  Sacramento and the local jurisdictions will go on a tax and fee increasing binge while reducing the cutting edge of government services – you know, the people on whom we actually depend, people like classroom teachers, police on the beat, fire fighters, and medical emergency first responders.  It only takes a reduction of a few of those to make the rest of us feel the pain, and believe the sound bites telling us that it’s either more pain or more taxes.  Add some mind numbing numbers to these messages, and most voters will again ‘see the light’ of tax increases, especially if the burden falls on the rich or the guy living down the street.

Biggs, Kevin, and Jensen report that the historical consolidations which have worked to balance budgets is a mix of at least 85% of spending cuts, and no more than 15% of the deficits made up from increased taxes.  They conclude that “(t)he experience of 21 countries over 37 years yields a simple truth: Cutting spending works, and raising taxes doesn’t.”

The alternative that ducks the entire problem is for fiscally strapped states to simply declare bankruptcy.  Unfortunately, the Chapter 9 type of bankruptcy available to cities and counties doesn’t yet apply to states.  So don’t be surprised if incoming Governor Brown joins with his economically challenged peers to demand that Congress pass new legislation opening up the bankruptcy option to states.  President Obama will be looking at that or endless federal bailouts for states too big to fail.

As we put away the holiday decorations, does anyone want to lay odds on which solution California will opt for in 2011?  In any event, I wish all KVMR listeners a healthy and prosperous new year.

My name is Rebane and I also expand on these and other themes in my Union columns, on NCTV, and on georgerebane.com where this transcript appears.  These opinions are not necessarily shared by KVMR.  Thank you for listening.