California And The Great State Bailout

Muscle man Arnold Schwarzenegger has told the California legislature that the state is out of money. California’s budget deficit is up $3.6 billion since the last estimate early this year. The deficit is now projected to be $14.8 billion.

In a state where property values are falling and businesses are failing at a remarkable rate, increasing taxes is an attractive but impractical option. State legislators are usually more corrupt and pandering than their brothers in the Congress. Going to their voters with plans to cut garbage collection or high school sports would probably diminish their chances of being sent back to Sacramento.

California is not alone in it troubles. The state economy is so bad in Michigan the the governor has just closed a state prison to save $134 million. No one has said where the inmates will go. If there is an auto company bailout, they may be able to find jobs in that industry. Florida recently announced that its budget for next year will be $2.3 billion in the red.

Now that the government has become the lender of last resort for banks, auto companies, and homeowners, it will almost certainly have to move on to states and municipalities. More than one large city in Michigan is in receivership. At some point very soon, that state will not be able to provide capital to allow basic services to operate in its most troubled towns. It is an odd case of crap rolling uphill and not down.

No one has a measurement of how much the state deficit problems will grow as the recession expands. Most states have built their budgets around perpetual prosperity. That makes them just like every other entity and person in the country.

If the hole in California is nearly $15 billion and more than $2 billion in Florida, it may not be a bad guess to put that number across the 50 states at between $50 billion to $100 billion. Compared with the bank bailout, it is a rounding error.

Douglas A. McIntyre