My prediction that at least one of the states would suffer a financial crisis looms nearer every day:
SACRAMENTO, Calif. (AP) – California’s controller says he will begin a 30-day delay on tax refunds and other payments starting Feb. 1 because the state is running out of money.
Controller John Chiang said Friday he must delay $3.7 billion in payments next month because lawmakers have failed to address California’s growing deficit.
With a $41.6 billion shortfall over the next year-and-a-half, the state is on the brink of issuing IOUs.
Chiang says his office must continue education and debt payments but will defer money for tax refunds, student aid, social services and mental health programs.
A severe drop in revenue has left the state’s main bank account depleted. The state had been relying on borrowing from special funds and Wall Street investors; those options are no longer available.
California has run into the perfect storm. Prop. 13 ensures that the state’s real estate tax revenues don’t increase unless new houses are built or old ones are sold and the rate at which houses are being built or sold has fallen precipitously. California’s state sales tax is already high enough to discourage retail sales. The state’s income tax is one of the highest in the country—high enough to motivate wealthy Californians to jump ship. The revenue stream is tapped out.
California’s credit rating is one of the nation’s worst: only Louisiana can match its A+. That means that borrowing is relatively expensive for the state and likely to get worse in a climate in which lenders are reluctant to lend.
Most of California’s expenses aren’t welfare checks—they aren’t transfer payments. I’ve read California’s budget. Most of the expenses are payrolls. California needs to reduce the compensation paid to state employees.
Short of cutting payrolls, likely impossible considering how beholden the state legislature is to the government employees’ workers unions, the state’s only hope is if it can find somebody
dumb generous enough to give the profligate state a hand. Now who might that be?