California Two Days From Paying Bills With IOUs?
Barring a miracle — I’d say a billion-to-one shot — the California legislature will not pass a budget by its constitutional deadline at midnight tomorrow forcing Gov. Arnold Schwarzenegger to pay bills by issuing IOU notes as he has vowed.
The state’s Democratic-dominated Assembly late Sunday passed a series of tax fees in an effort to balance the budget’s $24 billion shortfall knowing full well the governor will veto the bill as he did a similar measure last year.
And, the state is getting no love from its congressional delegation which is telling Sacramento to drop dead.
“Why would we bail out the state when it’s like giving drugs to a drug addict?” said Rep. Devin Nunes, a Republican who represents parts of California’s San Joaquin Valley. Asked if the federal government should be helping California with its budget crisis, Democratic Sen. Dianne Feinstein — the state’s senior senator — shot back: “Do you know what the state is getting in stimulus money? $50 billion.”
California is no penny ante state. It represents the world’s 8th largest economy. It is home to one of eight Americans. It holds the most electoral votes of any of the 50 states.
Rep. Zoe Lofgren, the chairwoman of the state’s 33-member Democratic delegation, said California’s budget quagmire is largely a result of structural process which requires any budget or tax increase pass by a two-thirds majority and as a result nothing gets done. “If we [in Congress] had to do what the California legislature does, we would never send a bill to the president of the United States,” she said. “That’s a problem. But I can’t solve that problem. . . . Ultimately the voters of California are going to have to confront what’s happening in their state and figure out what to do about it.”
The White House echoes this can’t-save-California-from-itself sentiment
A May Rasmussen poll found that 66 percent of voters nationwide opposed the federal government guaranteeing California’s loans. And 48 percent said it would be better to let California go bankrupt than to hand the state a federal bailout.
“The legislature and the governor have got to come together and make some decisions,” and then perhaps there is a way for the federal government to help, said veteran California Rep. George Miller, a Democrat and close ally of House Speaker Nancy Pelosi (D-San Francisco). “But I don’t see it now until the legislature takes the steps that they can and need to.”
The California situation amounts to a person “holding a gun to his head and saying, ‘If you don’t do something, I’ll shoot myself,’” said Alan Auerbach, an economist and public finance professor at UC Berkeley. “On the one hand, California needs help; but on the other hand, it certainly wouldn’t be unreasonable for the federal government to insist that California help itself too.”
Meanwhile, the Assembly bill passed Sunday, would balance the budget with the help of more than $2 billion in new taxes on smokers, oil companies, drivers and homeowners. State Senate leaders said they would take up the bill today.
Included in the package are a tax increase of $1.50 per pack of cigarettes, a 9.9% extraction tax on oil companies, a $15 vehicle license fee surcharge to fund state parks and a charge on homeowner insurance premiums to pay for emergency response systems.
Assembly Speaker Karen Bass (D-Los Angeles) said her caucus would push the package through to make the point that it is prepared to take action to close California’s deficit. The tax hikes account for a small share of revisions that included cuts in schools, healthcare programs and other government services as well as billions of dollars in deferrals and other accounting shifts that push state expenses into future years. “We just feel that it is very important that we act with or without [a budget] agreement,” she said.
Republicans are normally able to block tax increases despite being the minority party in both houses, because California is one of three states that require a two-thirds vote for budgets and tax hikes. Achieving that threshold requires some Republican votes.
The Democratic plan essentially swaps taxes and fees, employing an arcane loophole in state law that lets legislators pass a tax bill with a majority vote under certain conditions.
Can you imagine the outrage when state employees, vendors and bondholders are paid with IOUs?
I’m a native Californian and nothing surprises me concerning our state government. It’s a running scenario even Hollywood script writers would reject as too preposterous.
Cross posted on The Remmers Report