Oh California...
Contributed by Mike Walker, USMC Colonel (retired)
All,
1. California is not broke. The government in Sacramento is broke. That is a huge distinction. The average California Joe's and Jane's will go to work, pay their taxes, buy dinners, pay the rent, and get on with life in a pretty nice place to live. The US and California economies will NOT tank if the dysfunctional Sacramento government goes through an ugly fiscal meltdown.
2. Sacramento is more broken than broke. In the worst case scenario, the State government will not cease to exist. California's government will still take in, on average, well over $1,000,000,000.00 per WEEK. Put another way, it currently collects in the neighborhood of $200 million a day, seven days week, 52 weeks a year on average, even during a deep recession.
So, again, the US and California economies will NOT tank if the dysfunctional Sacramento government runs out of cash momentarily. It will be embarrassing, ugly, and painful for some but not the end of the world.
Why is this happening? The reason why California's government is always on the verge of going broke, in good times and in bad, is that it is unable to stop spending above and beyond the average +$1 billion it takes in every week.
3. THE worst thing that can happen is for the US taxpayer to bailout California's government. Most of you may not know this but the California state budget (1 July 2010-30 June 2011) passed in October 2010 already has included a Federal bailout. No kidding.
The elected officials in Sacramento already voted in a $5 billion Washington D.C. bailout (that does not exist) in order to try (in vain) to balance the government of California’s budget. That deserves the gold ribbon for chutzpah.
A good thing that could happen is for the US government to give California's government an emergency LOAN but only if Uncle Sam requires Sacramento to abide by the same kind of emergency loan rules that Sacramento imposes on, say, a bankrupt public school district.
Uncle Sam must require the California government to create a balanced multi-year projection (MYP) of its budget for the current and two subsequent fiscal years in order to receive the loan. Uncle Sam should further require the California government to create a fiscal action plan (FAP) to permanently solve the budget disconnect between revenues and expenditures. Uncle Sam should not release the bulk of the loan until both the MYP and FAP are enacted to the satisfaction of Uncle Sam.
Uncle Sam needs to appoint a Federal Fiscal Advisor who will go to Sacramento with power to approve or disapprove California State government expenditures. The Federal Fiscal Advisor should remain in place until such time that the California government pays back the loan. If California's elected officials refuse then let them live on their $200M a day and be done with it.
Warm regards from sunny California,
Mike
