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California Grabbing Money To Pay Its Bills

Posted by Morgan Miles Craft On 10:08 AM
by Morgan Craft

California’s cash crisis is being mitigated by borrowing $19.7 billion from state emergency funds, those for fighting fires, oil spills, and disaster recovery, according to State Controller John Chiang, the state’s top accountant. The state’s November cash deficit was $23 billion, up from $11.9 billion in July, forcing the funds grab.

For too long, Chiang said, the Governor and Assembly have been playing politics merely to create short-term solutions in passing a budget that doesn’t look at the future.

Let’s hope we don’t experience a natural disaster. But facing another potential financial tsunami remains a distinct possibility. “The state is at the bottom, facing incredible difficulties,” he said. Chiang, who oversees the handling of over $100 billion in funds, was in the valley recently to discuss the state’s budget situation with local civic leaders, and I attended the meeting. (Click to read on...)

Due to a lack of action by the Governor and Legislature to stave off a severe cash deficit, the Controller was forced to issue individual registered warrants, also called IOUs, to all the people it owed money to, beginning July 2. Though the state stopped issuing the IOU’s in September, it could happen again at any time. Only by borrowing the money was the state able to allow IOU holders to redeem them.

Despite the fact that the state collected $285 million more in taxes in October than projected in the budget Governor Arnold Schwarzenegger signed on July 28, overall revenue for the four months since the start of the fiscal year beginning July 1st remains $794 million below projections, Chiang said.

This month, the state began withholding an additional 10% in income taxes, another quick-grab measure. Basically, it’s a loan the state forced you to accept, which it says will be paid back in April, along with any tax refund you’re due. This follows .25% across-the-board tax hikes enacted in the spring.

The cash and credit crisis also led to a grinding halt of much-needed public works projects. According to Chiang, “The money we usually would lend to much-needed infrastructure projects was shut down; $6 billion worth, 18000 jobs, 5300 projects. If I had paid out that money, the state would have collapsed.” Fortunately, an infusion of Federal Recovery Act money has begun to cover some of those projects.

Still touted as the 8th largest economy in the world, California still may be looking at a $5 billion to $7 billion deficit this fiscal year, according to the Governor. Chiang outlined the litany of problems that got the state into the situation it now finds itself, saying, “high unemployment, excessive borrowing, ailing housing and construction industries, and legal challenges to the budget remain real threats to the State’s cash outlook.”

A November USC/LA Times poll revealed that only 14% feel the state is moving in the right direction – the lowest since 1992. Altogether 4 in 5 people say the state is headed on the wrong track. And an October Pew Research report named California as the most vulnerable state in the nation economically due to our “poor money-management practices”. It noted that we are hamstrung by our own constitution and amendments, which voters approved, and that lawmakers preferred passing on tough issues to the voters or the governor, instead of tackling those themselves. The same study also determined that California legislators regularly “punted” economic issues into the future by using “one-time gimmicks, temporary tax hikes, and stimulus spending”.

Next March the state could be looking at another cash crisis. According to Chiang, “the State has numerous ongoing financial obligations, plus we borrowed $8.8 billion ($2.6 billion of which was to pay back the outstanding IOU’s), which has to be paid back by next June 30th. There are many variables that will affect the economic situation we’re in. It’s time for everyone to be aware of this, and that’s why I’m going around the state and talking about it.”

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