Out of Control Policy Blog

California Beggin': State Seeks Billions from Federal Government

After repeatedly failing to keep its finances in order, the State of California is heading, hat in hand, to Washington, D.C., for—what else, in these times?—a federal bailout. Yes, now the Golden State is asking the other 49 states to subsidize its profligate spending.

According to an article in today's Wall Street Journal,

Facing a $21 billion shortfall through June 2011, California leaders want billions of dollars in budget relief from Washington that could head off deep cuts expected to state programs.

Gov. Arnold Schwarzenegger will ask the White House to waive rules that require the state to spend its own money on certain programs to receive federal funds, according to California officials briefed on the Republican's coming budget proposal.

Such relief, combined with additional stimulus funds, could save the state as much as $8 billion in the next 18 months, the officials said.

State Senate President Darrell Steinberg, a Democrat, will visit Washington in coming months to lobby Obama administration officials and the California congressional delegation for aid. His message: The national economy will depend on California's recovery.

In other words, in the modern parlance, California is "too big to fail." As goes California, so goes the nation, as the saying goes. Let us hope not. And, as another WSJ article from earlier this week entitled "After the Bailouts, Washington's the Boss" illustrates, the private sector is learning that those bailouts come with a high price: the loss of control and freedom over one's own affairs. This should serve as a cautionary tale to other governments looking for a handout.

Moreover, that $21 billion deficit estimate is surely on the low side. As has routinely been the case over the last several years, the budget gap figures will continue to rise, and some sources already put it at over $36 billion.

The WSJ article additionally noted: "Mr. Schwarzenegger last week sent a letter to House Speaker Nancy Pelosi and the rest of the California congressional delegation, saying the proposed national health-care overhaul would cost the state $3 billion to $4 billion a year." So much for being revenue-neutral, much less saving money somehow. Even by government numbers, which notoriously underestimate costs and overestimate benefits, the health-care "reform" plan will be enormously expensive—and increased government control will surely reduce, not increase, consumer choice and service quality, as has done in this and every other industry in which it has been imposed.

In his budget proposal scheduled to be released on January 8, Schwarzenegger will reportedly propose continued state employee furloughs and raiding local transit agencies' funds (again), as well as revive the idea of generating additional revenue by allowing oil drilling off the Santa Barbara coast. I sincerely hope there is more substance and focus on structural reforms than that. How about outsourcing numerous government services to more efficient providers in the private and non-profit sectors, reforming the pension system, improving the state's woeful business climate by reducing taxes and regulatory burdens, reducing exorbitant state employee salary and benefits costs and enacting significant and needed reforms to the state's pension and retiree health care systems, eliminating low-priority and poor-performing programs, getting rid of duplicative and unnecessary commissions and boards, and implementing a debt limit and a real spending limit? California policymakers need to finally get real if the state is to avoid total collapse. In the meantime, though, if the actions of the powers that be in Sacramento these past few years are any indication of their future actions and motivations, I'm not holding my breath.

Related research and articles:

» Reason policy study: Citizens' Budget 2003-05: A 10-Point Plan to Balance the California Budget and Protect Quality-of-Life Priorities (more applicable today than ever)

» "How to Fix California"

» "Getting California Back On Track"

» California Performance Review Commission Report (over 1,200 recommendations to save an estimated $32 billion over 5 years)

Adam Summers is Senior Policy Analyst


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