Wednesday, May 26, 2010

Fixing the Deficit.... With more debt

Democrats in the California State Assembly have a brilliant plan to avoid spending cuts and tax increases to close California's $19 billion budget deficit, borrow money! Dang, why didn't I think of that? Because when I'm in a hole, I don't keep digging. Here are the basics of this brilliant plan:

Perez's proposal was anchored by a nearly $9 billion loan from the state beverage recycling fund, along with borrowing from the state disability insurance fund. The state would repay the loans over several years, largely using a new tax Perez is proposing on companies that extract oil in California.

Under the plan by Perez, the state would get a one-time revenue of $8.9 billion from Wall Street by securitizing the California Beverage Recycling Fund for 20 years. The fund comes from recycling deposits collected on glass, aluminum and plastic beverage containers.

Securitizing? As in borrowing? So who is going to buy these bonds from a state that is theoretically bankrupt, because tax receipts don't cover ongoing programs? I'm just asking. There is also an increase in the "severance tax" for oil taken out of the ground in California. If oil prices collapse again, can we really count on this revenue?

This is the kind of creative accounting that got Greece to it's current state. Meanwhile the Democrat state Senate is proposing an additional $5 billion in taxes, largely from an extension in the "temporary" increase in vehicle license fees, and delaying corporate tax breaks. Neither Assembly nor Senate Democrats are proposing any reforms to pensions nor any real spending cuts. California is famously known for its Mediterranean climate, I guess in more ways than one.


  1. Why not reduce prison system waste before even considering any program cuts or taxes? Just shifting responsibility for parole from the State to counties would save at least $3 billion in prison costs. Contracting with counties for parole supervision, like Oregon and Minnesota have since the 1970s, would reduce annual prison operating costs by over $500 million and provide a funding to counties. Returning responsibility for housing technical parole violators back to the counties would reduce prison operating costs by well over $400 million annually. The changes would eliminate the need to build almost 20,000 prison beds at a cost of $2 billion to $3 billion. The bulk of the AB 900 construction funds could be applied to the deficit.

  2. Don't see how shifting operating costs saves much money in the short term. Usually, efficiency initiatives take many years to realize savings. You clearly have more knowledge of the specific subject than I do, so you are probably correct about long term savings. Two issues, $3 billion doesn't close the gap and I thought construction was budgeted differently through bonds, not directly through the budget, but I could be wrong.

    Thanks for commenting and contributing to the debate.