California is the canary in the welfare state coal mine. The way California goes, the way the United States will go. If they can fix their budget problems, so can the rest of the country. If they can’t, it is bad news for the rest of us.
The problems in California are not hard to understand. As I have explained in several previous articles (see here and here) the problem with the The Entitlement State is not insufficient taxation, but recklessly irresponsible spending policies. When in-state tax collections have fallen short of what the spendoholics in Sacramento have wanted, they have happily taken more federal funds to pay for their never-ending stream of entitlement programs and wasteful bureaucracies.
The election of Jerry Brown was supposed to change that. He was supposed to bring back The Golden State my means of better fiscal stewardship. As the Sacramento Bee reports, that has not happened:
California will run out of cash by early March if the state does not take swift action to find $3.3 billion through payment delays and borrowing, according to a letter state Controller John Chiang sent to state lawmakers today. The announcement is surprising since lawmakers previously believed the state had enough cash to last through the fiscal year that ends in June. But Chiang said additional cash management solutions are needed because state tax revenues are $2.6 billion less than what Gov. Jerry Brown and state lawmakers assumed in their optimistic budget last year. Meanwhile, Chiang said, the state is spending $2.6 billion more than state leaders planned on.
The only thing that make a state budget “optimistic” is the lack of credibility on behalf of lawmakers and the governor to stick to the budget. Apparently, the elected officials in Sacramento were unable to live within the means they themselves had determined. Even the “optimistic” revenue estimate is, ultimately, their responsibility. It was based on the notion that the Obama administration’s stimulus bill would generate a recovery in the U.S. economy (which, as I recently explained, it has not) but when you make a forecast that turns out to be incorrect, you man up and own it. In this case, that does not mean “keep spending as if there was no tomorrow.” Instead, it means “keep your spending within the means you have available.”
I am no big fan of across-the-board budget cuts – they do more harm than good – but in this case it would not even be a matter of cutting spending. Just slowing down the growth to fit within the revenues the state has.
This is evidently not going to happen. Governor Brown’s big talk in 2010 about ending California’s budget trouble was apparently a mix of feeble hopes, campaign rhetoric and hot air. And there is little chance he will change his way. Recently he has come under heavy pressure from the left flank of his party to raise taxes. While he should be listening to the increasingly confident conservatives who demand spending restraint, it is unfortunately a safe bet that Governor Moonbeam will fall back into the old Sacramento habits and go back to spending as usual.
If he does, the canary in the welfare state coal mine will have a very short life span. He and the spendoholics in the state legislature will run out of other people’s money even faster next budget year.