Is California’s Floundering Economy the US version of Greece?
by Hiland Doolittle
On January 25th, the State Comptroller for California, John Chiang, predicted that the state would run out of cash in April 2010. To prevent a repeat of last year’s state issued IOU calamity, Chiang warned the Governor, “While reasonable minds may disagree about the solutions, there is no room for debate about the folly of doing nothing.”
Chiang elaborated by predicting that the state will remain in troubled waters through the end of the fiscal year. Cash reserves will be stretched from March 30th through April 21st. Chiang added that the state’s $2.5 billion minimum cash balance safety net would be reduced to just $1.3 billion on March 30th.
On April 1st, the state will be in the red to the tune of $197 million. California will not have the resources to pay its obligations until April 21st at best.
The chaos in California permeates the capital city, Sacramento. Burdened with swollen unemployment and a flimsy tax base, rumors of irresponsible government spending run rampant throughout state government. While several other states continue to fight even higher unemployment rates, California appears to be in the most dire straits.
When Greece fell into similar circumstances, there was little international support for the country. Before any aid would be considered, the government was forced to implement dramatic cutbacks in expenditures, services and benefits. The result has been a country and an economy in chaos. Strikes, violence and protest demonstrations have been commonplace. And, even more dramatic cuts will be needed before the year is out.
Euro zone members are hesitant to provide aid. Spain, Portugal, Italy and Ireland are standing in line, ready to collapse in a heartbeat. Sounds like Michigan, New York, Nevada, Florida and Arizona doesn’t it?
California’s most critical dilemma begins with a dysfunctional state legislature. Indeed, members of the state’s governing body do not seem to understand the severity of the ballooning budget deficit. Remarkably with government staring at a $20 billion annual budget deficit on top of last year’s $60 billion deficit, pleas from Governor Schwarzenegger to cut all unnecessary spending were ignored. The state made some unusual purchases, including more than $75 million on furniture, vehicles and other discretionary acquisitions. Below are a few of the surprising purchases:
- Furnishing purchases of $1.4 million averaged about $7,000 per each DMV employee
- Spent $1 million on an airplane for a Caltran inspector
- Purchased a boat for $429,000
- Acquired 1300 cars, trucks and motorcycles for a nifty $34 million
- An additional $17 million in new Highway Patrol vehicles
The State Office of Assembly Accountability recently held hearings to obtain information and explanations for the expenditures. Numerous state workers were called to appear, but offered no answers as to why these purchases were authorized.
Schwarzenegger commended the efforts of the Assembly Accountability panel saying, “Wherever there is waste, we have to go detect it and get rid of the waste.” Sacramento, Schwarzenegger and California have lost their credibility. Actually, they seem strikingly similar to Greece wandering about with its hand out.
With a 12.7 percent unemployment rate and a devastated tax base, the future is bleak. Perhaps, Schwarzenegger should visit Prime Minister Papanadreao and get some tips on austerity spending cuts.
To add fuel to the fire, California posts negative rankings for luring new businesses. The Small Business Survival Index was developed in 2007. This is how California measures up in the 50 states and Washington D.C.
- 51st on personal tax rates
- 51st on capital gains tax
- 42nd on corporate taxes
- 43rd on health insurance requirements
- Overall ranking = 49
Hard to believe, isn’t it? Not if you look at the numbers. In 2003, when unemployment was a mere 5.9%, spending was just as uncontrolled and the state powered into bankrupt status. The Governor was recalled! Things have certainly not improved under the current administration and this once flourishing state stands on the brink of financial failure.
This is a case where federal regulators need to get involved and fast. Government spending must be stopped and government payroll must be trimmed. Instead of Schwarzenegger making more false promises, the government needs to step in and put a plan in motion before it is too late. Otherwise, taxpayers will be asked to bailout California and all the other problem states.
Tags: Bailout, California Fiscal crisis, Consumer Confidence, Economy
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
