Saturday, December 5, 2009

Impaired Vision

On Saturday, December 5, 2009, I stopped at my favorite optical store to pick up my sunglasses that I dropped off to have new lenses put in. They were moving in a bunch of cabinets and cases which I learned came from their other store located in a city in another county. They had closed that store. It was fallout from the state budget cuts as the population in that county is poorer than in ours. So I did a bit of research and came up with a story in the San Jose Mercury News which explained:

California's budget fiasco this year resulted in the elimination of optometry and optical services for adults 21 years and older, though there are exceptions for residents of nursing homes. As a result, those who least can afford health care coverage are no longer covered for low-vision evaluations and aids, leaving them at greater risk for injuries, accidents and depression.

And so the State saves money. And the store lays off employees. And the State loses income tax revenue and has to borrow money from the federal government to pay unemployment benefits to the employees because the State already spent all the unemployment insurance money it had collected from the store as an employer.

On May 26 I wrote here that California was experiencing an economic collapse later than the rest of the nation, a collapse I termed "The Great California Slump." I indicated that the collapse would begin in earnest in July.

I warned in August that some of the minimal "trickle down stimulus programs" could hide the imminent state budget disaster. I have repeatedly explained why the California economy will not recover during the next five or more years even if the national economy does make some recovery.

The fact is that the U.S. Department of Labor/California Employment Development Department statistics not seasonally adjusted raw data indicate that the California economy has lost 1,104,681 jobs since November 2007. If you add the net number of new jobs that needed to be added during the same period, we are down 1.5 million jobs in two years.

In my opinion California will be down 3.25 million jobs by November 2014 even though during that from 2011-2014 about 415,000 net jobs will be created.

As I warned in July, by late 2010 Californians will know that the State is in financial trouble. I didn't use any adjectives in the previous sentence to describe the "financial trouble" because any adjective used would cause readers to discount the true depth of the trouble. So let's turn to the Sacramento Bee's Dan Walters who last Sunday expressed the following:

Just how deeply in debt are our state and local governments?

The answer: No one knows for certain, since debt is scattered through myriad agencies in many forms, but well over a half-trillion dollars is a fair estimate.

...The state's "general obligation debt"...currently stands at $59 billion, and there are an additional $50-plus billion in general obligation bonds that have not yet been sold. The biggest chunks of debt, however, are the unfunded obligations for pensions and health care of retired public employees.

...A reasonable estimate of today's unfunded liability is $200-plus billion. A state commission, meanwhile, says the state-local liability for retiree health care is about $100 billion.

...Local government general obligation debt...appears to be roughly the same as the state's, perhaps $50 billion, plus several billion dollars in debt incurred by local redevelopment agencies.

There are tens of billions in specialized state debt, such as veteran home loan bonds, "securitization" of tobacco lawsuit proceeds, and budget deficit bonds.

The interest that must be paid on all that state and local debt is probably an additional $100 billion, so we're already talking about well over $500 billion.

Then there are the off-the-books debts incurred to paper over years of state budget deficits, such as speeding up tax collections that will have to be refunded later, postponing periodic payments to schools, making promises to schools about levels of future financing, borrowing money from special funds and taking local government funds that must be repaid later.

The state's unemployment insurance fund, meanwhile, is about $7 billion in the red, and that deficit is expected to more than double in the next year and quadruple by the end of 2011. The state has been borrowing from the federal government, but sooner or later it will have to repay the feds, probably by taxing employers.

Conservatively, then, California is probably more than $600 billion in debt.

Conservatively, then, the taxpayers of California are on the hook for about $48 billion a year in principle and interest payments on debt. Yes, some of this is from special revenues like gas tax or from local government revenues. But one needs to put the number "$48 billion" into perspective. The sum of $48 billion is not much less than the $56 billion the State collected in Corporate and Personal Income Tax in the 2008-2009 fiscal year. It is somewhat more than all the State and Local Sales Tax Revenue collected in the 2007-2008 fiscal year - $31 billion.

Any way you look at it, we taxpayers have a big debt payment compared to what we pay in taxes.

But that isn't even the problem. Los Angeles Times Columnist George Skelton described the upcoming budget battle as "dreadful:
Here's how nonpartisan Legislative Analyst Mac Taylor gently put it last week in calculating the latest general fund deficit: "Addressing this large shortfall will require painful choices, on top of the difficult choices the Legislature made earlier this year."

But, he added, "It is unlikely that the Legislature can address all of the state's massive, ongoing budget problems with permanent, ongoing solutions in the next year."

I don't have to be so diplomatic. I'll just say that there's no way these people can produce an honest budget that forces Sacramento "to live within its means," as Gov. Arnold Schwarzenegger persistently preaches, while consistently being one of the first to sin

"Dreadful" is an interesting word choice. Dan Walters used the more colorful term "bloody" because the battle lines between tax increases and spending cuts are forming:

We don't know whether the ever-flexible Schwarzenegger will stick with his no-more-taxes mantra or, as he has done before, reverse himself. However, February's temporary tax increases have already stirred a backlash, and hitting taxpayers again in the midst of this record-deep recession would be politically almost impossible.

...They've scraped the bottom of the gimmick barrel, voters are livid and new taxes are functionally off the table. This will be one of the bloodiest skirmishes the Capitol has ever seen – with the only option being that the most populous state in the nation default on its debts.

What's facing the Legislature is the lack of viable gimmicks. Debt payments and further school financing cuts are off the table, the latter because the state accepted federal stimulus funds requiring continued State spending plus the State owes $1 billion more for this year.

Even some of the gimmicks used this year were predictably unusable. Courts have blocked reductions in home care for the disabled, ordered $1.4 billion above the budget in spending on prisons, and said the State can't divert $800 million in gas tax funds to the General Fund. The courts have also overturned the furlough program for thousands of State employees.

Yes, the situation is going to be dreadful and bloody. But they really have no idea how bad it will be. We actually won't know the worst of it until May 2010. From December through April, we will find out just how much the extra income tax withholding and estimated payments plus the obvious corporate tax overpayments will become refunds. In that period, we will also find out, as I noted last July the total of property tax payments that "will not be made in this fiscal year due to foreclosures or simple lack of money."

And for the tax year July 2010 - June 2011, the drop in assessed value will have continued in many parts of California, meaning that there will be less money from that source for schools which will mean that other General Fund monies spent in 2009-2010 on other programs will be diverted to schools. And it will mean that cities, counties and special districts will have less money to spend on public safety, parks, etc.

Oh. And more people like the employees of the optical store will be laid off. One thing for certain. "Those who least can afford health care coverage" likely will not be "covered for low-vision evaluations and aids" before 2017, if ever, "leaving them at greater risk for injuries, accidents and depression."

No comments: