An act of madness. Yet seemingly inevitable. Lost somewhere amid the circus of this month’s U.S. Presidential election was a potentially far more significant and historic poll result: that of the Californian state legislature.
With a known population of 37.6 million, and an economy with a gross state product of just under two trillion dollars, California, were it an independent nation, would have the eighth-largest GDP in the world, though only 34th in terms of population and 60th in land area. Commanding 55 of the 538 electoral college votes, and 12% of the population of the United States, California is also home to one-third of the country’s welfare recipients. According to Wiki, California has the highest per-capita spending on welfare of any state. And the proportion is growing each year. Not only that, but budget blowouts have now reached the point where, according to the Wall Street Journal,
Lawmakers have been borrowing and deferring debts for the past decade merely to close their annual deficits, and those bills will soon come due. The legislature has raided $4.3 billion from special funds and deferred $10 billion in constitutionally required payments to schools.
The state has also borrowed $10 billion from Uncle Sam to pay for jobless benefits and $313 million this year from the state disability insurance trust fund for debt service on those federal loans. Democrats have proposed replenishing the state’s barren unemployment insurance trust fund by raising payroll taxes on employers. Expect that to happen now.
Then there’s the more than $200 billion in unfunded liabilities the state has accrued for worker retirement benefits, which this year cost taxpayers $6.5 billion. The California State Teachers’ Retirement System says it needs an additional $3.5 billion and $10 billion annually for the next 30 years to amortize its debt.
The state has $73 billion in outstanding bonds for capital projects and $33 billion in voter-authorized bonds that the state hasn’t sold in part because it can’t afford higher debt payments. Unissued bonds include $9.5 billion for a bullet train, which will require $50 billion to $90 billion more to complete. Sacramento will also need more money to support an $11 billion bond to retrofit the state’s water system, which is planned for the 2014 ballot.
The official debt figures don’t even include that last item, the white elephant that is the Californian High-Speed Rail Project, originally costed at $35 billion, but has blown out over the past four years to nearly three times that amount, will never be used by more than a tiny fraction of the population, and probably won’t even start actually running trains for at least another ten years. California has, in fact, been racking up debt as fast as it has been legally able, and deferring repayments, kicking the problem into the future, for as long as possible. But the bills are about to come due, and there is no money to pay them. And unlike the Fed, California can’t print its own money.
In other words, the Golden State is broke.
But this is where the madness starts. Until now, at least a particle of fiscal restraint has been possible, due to California’s constitutional requirement that state budgets must be passed by a super-majority of two-thirds on both the Lower House (state assembly) and the Upper House (state senate). Though the Republicans have not controlled the Californian state legislature for many years (and are unlikely to ever do so again), there were always just enough conservative districts to ensure the free-spending Democratic majority were required to moderate their budgets somewhat to ensure that at least their public school teachers and police officers received their pay cheques, and the garbage got collected.
The thing is, all those welfare recipients I referred to above are also voters (the adult ones, anyway). Even the large proportion of illegal immigrants are now actually able to vote in state and federal elections. This is due to a campaign by former vice-President Al Gore over his eight-year term to allow illegal immigrants to open bank accounts—which have subsequently become acceptable proof of identity as voter registration in many states, including California. Given that they represent over 7% of California’s population, come mostly from neighbouring Mexico, and are beholden exclusively to one side of politics, what transpired at the 2012 state poll is hardly surprising; indeed, it was always only a matter of time.
Two years ago, Msher wrote on this blog about the (now-defunct) George Soros-backed Secretary of State Project (SoSP), designed to install left-leaning politicians in the state office responsible for the conduct of all elections. California’s incumbent Secretary of State is one Debra Bowen, a career Democratic campaigner and candidate for public office. I know nothing about her beyond her official bio and her Wiki entry, but I would be prepared to bet that she was right behind the Gore move, whose ostensible rationale is the encouragement of wide participation in the democratic process, in a country which does not have compulsory voting, but whose net effect is to expand the Democratic party’s vote base, to the point where it holds power in perpetuity.
And this month, the threshold was finally reached. According to this graphic in the Los Angeles Times, the Democrats have just scraped in with the 53 (and possibly 54) seats needed in the state assembly, and two more than the 26 seats it needs in the state senate, to form a super-majority in both houses. Not only that, but according to this article in American Thinker,
The eighth largest economy in the world is in dire shape, and its financial condition may affect the entire U.S. economy. Simply put, “California can’t pay its bills.” The state’s debt is over $16 billion. What was the public’s response? On Tuesday, November 6, 2012, California voters approved Proposition 30 (“temporarily” increasing the state sales tax and income tax on individuals making over $250,000), while rejecting Proposition 31 (allow the governor to cut the budget in fiscal emergencies) and Proposition 32 (prevent unions from making campaign donations via members dues). They also elected a liberal super-majority, insuring no spending reform. The California economy will collapse. Will a federal government bailout follow the collapse? Is California “too big” to fail?
Unless my pocket calculator is broken, a federal government collapse (or money printing spree, at a minimum) will follow a Californian collapse. Continues the WSJ article,
With no GOP restraint, liberals can now raise taxes to pay for all this. They’ll probably start by repealing Proposition 13’s tax cap for commercial property. Democrats in the Assembly held hearings on the idea this spring. Then they’ll try to make it easier for cities to raise taxes.
The greens want an oil severance tax. Other Democrats want to extend the sales tax to services, supposedly in return for a lower rate, but don’t expect any “reform” to be revenue neutral. Look for huge union pay raises and higher pension benefits.
The silver lining here is that Americans will be able to see the modern liberal-union state in all its raw ambition. The Sacramento political class thinks it can tax and regulate the private economy endlessly without consequence. As a political experiment it all should be instructive, and at least Californians can still escape to Nevada or Idaho.
If that sounds to you like it has been lifted straight from the pages of Atlas Shrugged, you’d be pretty close to the truth. Slugging the wealthiest and most productive individuals will only lead to a flight of capital and brainpower, to somewhere more conducive to unfettered productivity. To take an obvious example, who says block-buster feature films or TV series still have to be made in Hollywood? The major studios are waking up to the fact that significant cost savings can be achieved by moving filming and production offshore. In recent years, The Matrix series, X-Men, Happy Feet, Moulin Rouge and Star Wars II and III were all shot and/or produced at Fox Studios in Sydney; Xena: Warrior Princess, The Lord of The Rings and the upcoming Hobbit series were shot on location in New Zealand, the latter two by a Kiwi director, and produced in Weta studios in Wellington.
Similarly, the oppressive legislative and regulatory regimes faced by even small businesses in California mean it is only a matter of time before Silicon Valley looks elsewhere for an environment more conducive to IT start-up enterprises. And while none of the secession petitions filed in Washington D.C. in the wake of Obama’s re-election have any realistic chance of gaining traction—for now—the escape from California is real, happening now, and when it translates to an appreciable drop in the state’s revenue base, may give legislators some pause for thought, that just maybe, basing a guaranteed free hand in government by handcuffing themselves to a captive welfare constituency is a short-term, feel-good solution at best; economic suicide at worst.
Where California goes, so eventually does the rest of America. The social revolutions that began in San Francisco forty-five years ago are now reflected, to a greater or lesser degree, in every other state. It surely can only be a matter of time before state after state becomes electorally bound to its own welfare constituency, a significant proportion of it composed of illegal immigrants. How that will sit with the tax-paying citizens of Texas, Alaska and Kansas, history will judge.
I Love You, California, featured at the top of the page, is the state’s official anthem. But I wonder whether, when the “love” runs out as surely as the money is about to, when the state’s most productive citizens have fled, when law and order breaks down as it has been promising to do for years (remember our own God-emperor got his first big break that way twenty years ago), some may look to the causes, and conclude that a re-working of Fun Boy Three’s 1982 hit single might be a lot more appropriate: