As Calitics alum David Dayen put it, it's the "news of the year": Arnold Schwarzenegger's outgoing Finance Director Mike Genest explored both bankruptcy AND turning California into a federal territory as a solution to our financial mess:
"I looked as hard as I could at how states could declare bankruptcy," said Michael Genest, director of the California Department of Finance who is stepping down at the end of the year. "I literally looked at the federal constitution to see if there was a way for states to return to territory status."
This confirms a series of rumors we reported on back in January and February, but at the time we didn't know that Genest was even considering abolition of the state government itself by having California become a US territory. (Historical note: California never was a US territory - we went directly to statehood after the American conquest.)
While turning California into a ward of the federal government would be an extreme and unlikely measure, bankruptcy was always a more plausible outcome. Even then, there are considerable obstacles to that, including provisions in the state constitution mandating repayment of debts as a primary budget obligation.
The context of Genest's quote was a Wall Street Journal story about state budget woes. The article makes it crystal clear that California's problems are not unique, and are not the result of "overspending" or "waste, fraud and abuse" as the right-wingers claim:
"We're facing a cliff in 2011 when stimulus dollars run out," said Mitchell Bean, director of the Michigan House Fiscal Agency. "There is not an end in sight, even in recovery."
As of July 2009, California's budget shortfall was 49.3% of its general funds. States have considered drastic options to fill such gaps....
There were no bankruptcy options, and the legislature chose to cut back sharply on education and health care to fill the gap. Mr. Genest already predicts the 2011 shortfall will outpace the projected $7 billion gap. It is a smaller deficit than this year's gap, but the choices will be more difficult because so many cuts have already been made.
Mr. Genest estimated that, eventually, 40% of the state's budget would go to the state Medicaid program, 40% to education, 10% to debt service and 6% to retiree medical services and pension-leaving little left for anything else, such as the state's corrections system.
Ironically, Genest's old boss has consistently opposed prison reform and sentencing reform, continuing to lie to voters that they can have tough-on-crime policies without having to pay for them.
The looming crisis in 2011 is compounded by the expiration of the temporary tax increases enacted in April 2009 - which, we should note, have not produced further economic ruin for California, and are not responsible for the more fundamental weakness of the CA economy. New revenue is absolutely essential to California's future, or else we are going to see an even deeper and more destructive round of cuts. This is compounded by both the lack of majority rule in California, as well as the unwillingness of any of the remaining gubernatorial candidates, Jerry Brown included, to propose new tax revenues.
Without stronger and better funded government services, economic recovery is simply impossible. And maintaining what we have will be difficult enough. The collapse of revenues - we're 50% below where we need to be since this recession began, according to the article - is the primary crisis for both California and the federal government to address.
Unless the gubernatorial candidates, along with the Congress and the White House, start to offer a more lasting solution to the mess, it's going to be hard to take any of them seriously. |
