"Americans have been “brainwashed” into believing they pay a lot of taxes, Prof. Dreier added. In fact, they are among the least-taxed people in the Western World, particularly if they’re wealthy, he said."
California on 'verge of system failure’
Barrie McKenna
Los Angeles — Globe and Mail Update
Published on Friday, Jun. 18, 2010 6:01PM EDT
http://www.theglobeandmail.com/repo...a-on-verge-of-system-failure/article1609891/?
Last updated on Friday, Jun. 18, 2010 8:21PM EDT
.Arnella Sims has seen a lot in her 34 years as a Los Angeles County court reporter, but nothing like this.
Case files piling up by the thousands, phones ringing off the hook, forced midweek courthouse closings and occasional brawls as frustrated citizens queue for hours to pay parking fines.
“People think we’re becoming a Third World country,” said Ms. Sims, 55. “They don’t understand.”
It’s a story that’s being repeated all across California – and throughout the United States – as cash-strapped state and local governments grapple with collapsed tax revenues and swelling budget gaps. Mass layoffs, slashed health and welfare services, closed parks, crumbling superhighways and ever-larger public school class sizes are all part of the new normal.
California’s fiscal hole is now so large that the state would have to liberate 168,000 prison inmates and permanently shutter 240 university and community college campuses to balance its budget in the fiscal year that begins July 1.
Think of California as Greece on the Pacific: bankrupt and desperately needing a bailout.
“We are on the verge of system failure,” warned Jean Ross, executive director of the California Budget Project, an independent think tank based in Sacramento.
None of this would matter much to anyone outside the not-so-Golden State except that California’s budget crisis is a harbinger of a grim dilemma that all Americans will soon confront. The country has built an elaborate and costly government machine, tied to a regressive tax system that can’t generate enough revenue to pay for it all.
Canadians too have a stake in all this. Dramatic cuts by state governments are threatening to derail the U.S. recovery, dampening expectations for global growth.
“This is a classic American dilemma,” explained Peter Dreier, a professor of politics and director of urban and environmental policy at Occidental College in Los Angeles. “Americans expect a lot of their government. But politicians have convinced them they’re not getting what they want.”
Americans have been “brainwashed” into believing they pay a lot of taxes, Prof. Dreier added. In fact, they are among the least-taxed people in the Western World, particularly if they’re wealthy, he said.
After unveiling a grim budget last month that scraps a popular welfare program for a million children and slashes countless other programs for the poor and elderly, California Governor Arnold Schwarzenegger complained that the state’s broken budget process has left him facing a “Sophie’s Choice.” That’s a reference to the story of the Polish Jew forced by the Nazis to choose between saving her son or her daughter from the Auschwitz gas chambers.
Experts say the U.S. government will inevitably have to come to the rescue, using its borrowing clout to save the state from near-bankruptcy or devastating service cuts. Do nothing, and the entire U.S. economy could be put at risk. California, like the country’s banks, may be too big to fail.
California is looking at a gap of $19-billion (U.S.) this year and $37-billion next year on a roughly $125-billion-a-year budget. Local governments, including the City of Los Angeles, are in similarly dire financial straits and are now scrambling to shed workers and services.
“We have to get some federal money,” argued Ms. Ross of the California Budget Project. “The impact [of the Schwarzenegger budget] would be enough to slow down the U.S. economy. It would be bad for the U.S. and, arguably, bad for the world to do the shock therapy approach.”
And California isn’t alone in angling for a bailout. U.S. states are facing shortfalls totalling nearly $300-billion in 2010 and 2011; they also must wrestle with hundreds of billions more in unfunded pension obligations to their workers. “There are a few Greek crises brewing among the United States of America,” said economist Ed Yardeni of Yardeni Research Inc.
The task is made all the more difficult because California and virtually all other states are barred by legislation from running operating deficits, forcing them to balance their budgets annually by slashing spending, raising taxes or both. Typically, states can only borrow short-term funds, or for capital projects.
Billionaire Warren Buffett, who advised U.S. President Barack Obama during his White House run, suggested recently that a Washington bailout of California and other troubled states is inevitable. How, he wondered, can Washington deny California after saying yes to General Motors, AIG and dozens of banks.
“I don’t know how you would tell a state you’re going to stiff-arm them with all the bailouts of corporations,” Mr. Buffett said.
The alternative for many state and local governments may be default. Mr. Buffett said many state and municipal bonds are only triple-A rated because investors assume there’s a federal backstop. “If the federal government won’t step in to help them, who knows what [the bonds] are,” he said.
California on 'verge of system failure’
Barrie McKenna
Los Angeles — Globe and Mail Update
Published on Friday, Jun. 18, 2010 6:01PM EDT
http://www.theglobeandmail.com/repo...a-on-verge-of-system-failure/article1609891/?
Last updated on Friday, Jun. 18, 2010 8:21PM EDT
.Arnella Sims has seen a lot in her 34 years as a Los Angeles County court reporter, but nothing like this.
Case files piling up by the thousands, phones ringing off the hook, forced midweek courthouse closings and occasional brawls as frustrated citizens queue for hours to pay parking fines.
“People think we’re becoming a Third World country,” said Ms. Sims, 55. “They don’t understand.”
It’s a story that’s being repeated all across California – and throughout the United States – as cash-strapped state and local governments grapple with collapsed tax revenues and swelling budget gaps. Mass layoffs, slashed health and welfare services, closed parks, crumbling superhighways and ever-larger public school class sizes are all part of the new normal.
California’s fiscal hole is now so large that the state would have to liberate 168,000 prison inmates and permanently shutter 240 university and community college campuses to balance its budget in the fiscal year that begins July 1.
Think of California as Greece on the Pacific: bankrupt and desperately needing a bailout.
“We are on the verge of system failure,” warned Jean Ross, executive director of the California Budget Project, an independent think tank based in Sacramento.
None of this would matter much to anyone outside the not-so-Golden State except that California’s budget crisis is a harbinger of a grim dilemma that all Americans will soon confront. The country has built an elaborate and costly government machine, tied to a regressive tax system that can’t generate enough revenue to pay for it all.
Canadians too have a stake in all this. Dramatic cuts by state governments are threatening to derail the U.S. recovery, dampening expectations for global growth.
“This is a classic American dilemma,” explained Peter Dreier, a professor of politics and director of urban and environmental policy at Occidental College in Los Angeles. “Americans expect a lot of their government. But politicians have convinced them they’re not getting what they want.”
Americans have been “brainwashed” into believing they pay a lot of taxes, Prof. Dreier added. In fact, they are among the least-taxed people in the Western World, particularly if they’re wealthy, he said.
After unveiling a grim budget last month that scraps a popular welfare program for a million children and slashes countless other programs for the poor and elderly, California Governor Arnold Schwarzenegger complained that the state’s broken budget process has left him facing a “Sophie’s Choice.” That’s a reference to the story of the Polish Jew forced by the Nazis to choose between saving her son or her daughter from the Auschwitz gas chambers.
Experts say the U.S. government will inevitably have to come to the rescue, using its borrowing clout to save the state from near-bankruptcy or devastating service cuts. Do nothing, and the entire U.S. economy could be put at risk. California, like the country’s banks, may be too big to fail.
California is looking at a gap of $19-billion (U.S.) this year and $37-billion next year on a roughly $125-billion-a-year budget. Local governments, including the City of Los Angeles, are in similarly dire financial straits and are now scrambling to shed workers and services.
“We have to get some federal money,” argued Ms. Ross of the California Budget Project. “The impact [of the Schwarzenegger budget] would be enough to slow down the U.S. economy. It would be bad for the U.S. and, arguably, bad for the world to do the shock therapy approach.”
And California isn’t alone in angling for a bailout. U.S. states are facing shortfalls totalling nearly $300-billion in 2010 and 2011; they also must wrestle with hundreds of billions more in unfunded pension obligations to their workers. “There are a few Greek crises brewing among the United States of America,” said economist Ed Yardeni of Yardeni Research Inc.
The task is made all the more difficult because California and virtually all other states are barred by legislation from running operating deficits, forcing them to balance their budgets annually by slashing spending, raising taxes or both. Typically, states can only borrow short-term funds, or for capital projects.
Billionaire Warren Buffett, who advised U.S. President Barack Obama during his White House run, suggested recently that a Washington bailout of California and other troubled states is inevitable. How, he wondered, can Washington deny California after saying yes to General Motors, AIG and dozens of banks.
“I don’t know how you would tell a state you’re going to stiff-arm them with all the bailouts of corporations,” Mr. Buffett said.
The alternative for many state and local governments may be default. Mr. Buffett said many state and municipal bonds are only triple-A rated because investors assume there’s a federal backstop. “If the federal government won’t step in to help them, who knows what [the bonds] are,” he said.
