State governments are in trouble only because they have imposed on themselves so-called balance budget provisions and, in the case of California, because the minority party is steadfastly blocking the tax increases that would make IOUs unnecessary. In essence, they are in no bigger trouble than the federal government is, and in many respects are in less trouble (notably, their greater dependence on sales and property taxes, which have not fallen as much as the sort of taxes the feds depend on).

If they really are in as much trouble as Eliot claims, then, the solutions are straightforward. Either abandon the balance budget dogma or raise tax rates. If the voters of these states cannot see their way clear to doing these things, then all I can suggest is that they do not see the problems as being nearly as bad as Eliot does.

By the way, what exactly is the material difference between IOUs and debt? Are not the IOUs just an end-run around California's constitutional restriction on debt finance? Does not the Californial Republican party not therefore support debt finance?

If they really are in as much trouble as Eliot claims, then, the solutions are straightforward. Either abandon the balance budget dogma or raise tax rates.

notice how they never talk about cutting the spending. it's always tax, tax tax tax tax and more tax.

Hey Lloyd,

Novel idea but how about shrinking government. How about getting rid of the entitlement spending?

What entitlements should to be cut? It is easy to talk about raising taxes and cutting spending. It is alot harder to identify on whom you can raise the taxes or what programs can be cut. Who cares that there are millions of working poor who are doing their best to survive and need that assistance. Let them starve, so we can wipe out the small percentage of system scammers.

"State governments are in trouble only because they have imposed on themselves so-called balance budget provisions and, in the case of California, because the minority party is steadfastly blocking the tax increases that would make IOUs unnecessary."

...er, I think you got that wrong. The problem is that the Democrats are refusing to make the necessary cuts in expenditure in the budget of a state that is already spendign at unsustainable levels.

"Either abandon the balance budget dogma or raise tax rates."

Does it simply not occur to you that they have a third option - to cut expenditure?

Being in politics simply to administer largesse funded through other people's money (taxes) is easy. The harder part is doing the responsible thing and balancing the budget.

What are the millions of working poor doing for themselves? Are they improving their job skills by completing or furthering their education? In most cases no. Are they exercising sound judgment in family planning? Oftentimes not? Are they nvolved in the criminal justice system? Too often yes. Decide which plans to cut is easy. The political will to do it is hard. Why? Because you libs have successsfully made millions of people seemingly dependent on government for their survival. California is a microcosm of whta will happen throughout the USA in ten years. Out of control spending. Immigration policies that not only ignore illegal immigration but encourage the practice. Affluent people are leaving California in droves. They are sick of being targeted as revenue. The same is happening in other states. Wake up America government is killing this country.

Without the requirement of a supermajority to raise taxes (implemented into law by a ballot initiative a while back), the GOP in the CA state legislature would barely have the authority to request permission to use the restroom. Even the GOP governor had to get into office through an extraordinary process since the wingnut primary voters seem unwilling to pick a social moderate as their nominee (and social conservatives are doomed from the outset in a statewide race here), and the legislature districts are gerrymandered to the point where no seats are likely to change hands from one party to another anytime soon (which is why Fabian Nunez was so intent on weakening term limits as they were the only form of limitation or accountability he continued to face). It's very amusing to see anyone try to pretend that the Dems somehow lack power in a state like CA (I can't wait till 2006/2008 to see how they try to pretend that the GOP has somehow prevented the Dems from accomplishing some portion of their agenda at the federal level; look for 40 senators to magically become the most powerful politicial coalition this country has ever seen).

Also, they did raise some taxes; the sales tax rate was raised by 1% (leading to a 7% year-over-year decline in revenue collected in the first month of its effectivity) and the tax for car registration was doubled (which will take some time to show much in the way of results since collection is so spread out). Property taxes can't be increased except in prop13-exempt areas, and an income tax increase wouldn't help much in the immediate term. The real problem is that the jokers in sac-town assumed that the housing bubble wasn't actually a bubble, and that house prices could continue to sustainably double every few years in perpetuity without a reversion to (or below) the longer term valuation trend or even just to basic affordability, and that the resulting tax revenues could be counted on in the future (kind of like when the Clinton camp believed that there was enough real value in the dotcoms to justify the NASDAQ being at 6000 and that bid bad Bush's policies had somehow deliberately destroyed it all starting 7 months before the election and 10 months before the inauguration). Now they're getting into the SOP playing politics with the budget and claiming that the first cuts have to be schools, police, hospitals and firehouses (as if there's nothing less important than emergency services in a beurocracy as bloated as CA) while nobody bats an eye at the $1mil to deliver the octomom's brood on the state tab or the $1.4 mil to shut down downtown L.A. for the Jackson funeral (maybe Jerry Buss should demand a refund of the money he had to pay for the city to provide police and crowd control for the Lakers' parade since Villarigosa says that's the city's job to provide no matter what).

Balanced budget requirements are the problem? Right...

Since Pete Wilson left office, California has been a shining example of what liberal Democrats can do with one of the world's largest economies, a compliant populace, a fat tax base, and one of the most funamentally sound education systems in the world.

They raised every tax, fee and surcharge they could. Regulated anything that moved. Drove away businesses at the same time housing costs soared out of control. Funded every conceivable social program.

That is not to say that Spitzer isn't correct in pointing out that defined pension benefits and similar mandated spending isn't the fundamental problem. However, it is no accident that California and other large blue states are the first to fall. They've wasted the most money and are crippled by the most ideologically flawed thinking.

Social programs are only debatable as good public policy when you can afford them. Within a few more months, state governments like California will be lucky if they can afford law enforcement. Needle recycling programs and the like will just have to wait for better days.

It's not fair to say that the Dems in Sacramento regulated "everything that moved". They waited until mid-2008 to attempt any sort of serious regulation of the fly-by-night mortgage brokers who helped the housing bubble along by coaching borrowers as to which lies to put on an "Alt-A" loan application (in the event that the lenders themselves weren't doing so) in order to obtain a loan which they couldn't ever hope to repay or even service for very long.

While the house of cards was bing built, one could be "credentialed" as a mortgage broker with minimal actual training, and many of the truly unscrupulous actors in this field are now re-"trained" and working as foreclosure/bankruptcy consultants. That's not to say that there aren't honest and honorable mortgage brokers in CA (mostly those are the ones who had been doing their business for years by the time the bubble started and have worked through peaks and troughs in the market before and likely intend to this time as well). As with any sort of boom times (dating back to at least 1849 in CA), the promise of "easy" money attracts the unscrupulous and the end of the boom will ultimately shake out the charlatains from the earnest.

L91:

Balanced budget requirements are the problem? Right...

Since Pete Wilson left office, California has been a shining example of what liberal Democrats can do with one of the world's largest economies, a compliant populace, a fat tax base, and one of the most funamentally sound education systems in the world.

They raised every tax, fee and surcharge they could. Regulated anything that moved. Drove away businesses at the same time housing costs soared out of control. Funded every conceivable social program.

That is not to say that Spitzer isn't correct in pointing out that defined pension benefits and similar mandated spending isn't the fundamental problem. However, it is no accident that California and other large blue states are the first to fall. They've wasted the most money and are crippled by the most ideologically flawed thinking.

Social programs are only debatable as good public policy when you can afford them. Within a few more months, state governments like California will be lucky if they can afford law enforcement. Needle recycling programs and the like will just have to wait for better days.

Okay so needle recycling isn't a major priority, but where do you start cutting and who would be affected? Below are some of the ones that have been suggested on other forums. And I'm curious as to which programs can easily and painlessly be cut.

What about school breakfasts and lunches? Day cares for teen mothers? Subsidized medications for the elderly and disabled? Sanitation? Road repair? Public transportation? After school programs? Day care for the elderly? Subsidized housing? Tax credits for having kids? Upkeep on public parks?

If only someone would forgive student loan debts and put hundreds of dollars back into the pockets of consumers, then people could buy cars and/or houses and right this economy.

Imagine you are a desert island with 100 other survivors. Everyone votes in favour of a guarantee of 3 meals a day for all - what could be wrong with that? Surely everyone is entitled to 3 meals a day? The problem is that there is only enough food for 1 meal a day. You can vote and complain and talk about entitlements and hardship all you like - the cupboard is bare.

I know we are not on a desert island. I know it is a more complex society than that. But the basic principles still apply. California has been spending money without regard for where it comes from. The result is what you see today. It has been known for some time to be on an unsustainable path, but the politicians in Sacramento are too busy with their noses in the trough to act.

We need to think more as though we are in fact on that desert island, and less like we've each got the Diamond as Big as The Ritz. Becuase, our circumstances are closer to the former than the latter.

Don't think about it as "what can we easily and painlessly cut." None of these cuts will be painless or easy. However, instead, think of it as "we have $X million to spend on public services. What should we do with it." You can no more do the rest than you can afford to start a California-specific moonshot mission.

Hey, Hogie

If they could cut spending enough, and Lord knows they've tried many times, they would not be in this pickle. California's education and infrastructure, like that in much of America, is already falling apart.

Ironically, the US increasingly resembles the old Soviet Union, which had OK privately-owned facilities (peoples' own houses, for example) but very shabby public facilities. And, in a way, for an analogous reason.

In the US, the secular religion of tax cutting has progressively starved the public sector, a situation which has been managed mainly by suspending all but emergency investment in infrastructure, as when a bridge falls down because money had not been allocated to inspect and repair bridges. In the Soviet Union, infrastructure investment was starved by a combination of lousy economic performance, which left little resources for it, and huge military spending, which diverted scarce resources away from things actually useful to the public (like roads).

Nick,

Well gee, why did I not think of spending cuts? Duh.

Well, you see, I did think of it. And it is just what all these states said by Spitzer to be in trouble are doing. And it is not working, which is why Spitzer says they are in trouble.

Budgets have to be balanced, more or less, over the years. Otherwise, debt will grow indefinitely, eventually people will stop buying it, and you go bankrupt. And you are right, balancing the budget is hard work.

But, you see, none of this means that budgets have to be balanced each and every year, as many state constitutions/laws require. In particular, there is no economic reason why budgets have to be balanced in the midst of the largest recession in 80 years. On the contrary, the responsible thing is to allow temporary deficits to open up, then claw them back when the economy recovers (as it surely will).

So, you see, the immediate problems of California and these other states stem from a combination of events they cannot control--the recession--and their own self-imposed economic idiocy. Under these circumstances, and since the solution is blindingly obvious, I have rather less sympathy with them than Spitzer seems to.

And Nick,

We are not on your desert island for a more important reason. It is not the case, in California or any other US state, that there are not enough sandwiches to go around. In fact, the US, and California in particular, are richer than anybody has ever been in all of human history. Let me repeat that: in all of human history.

The issue, whatever it is, has nothing at all to do with a lack of sandwiches.

Lloyd -

Well, sorry - I didn't intend to suggest that you simply weren't aware of spending cuts as a theoretical option, I was reacting to the apparent presumption that when there's a perceived need for more money by government, they should simply take more of my money. While that might not be your immediate presumption, it is one that is widespread.

The need for a balanced budget does entail the capacity for debt - e.g. bonds - to smooth things out. However, in my view rightly, these are usually directed at capital programs such as new schools or hospitals.

While I understand the appeal of a kind of "bucket of money" that is set aside in the good times to smooth things in the bad, I simply do not trust politicians to use it wisely. Case in point: here in the State of Washington, we had a multibillion dollar 'surplus' of this kind. It could have helped enormously to get us through this tough downturn. But, no - Gregoire, a pure tax and spend Democrat of the worst kind, used it to increase infrastructural spending... more teachers, fatter benefits for the public sector, etc.

If I get an unpredictable bonus payment of 20%, it would be idiotic of me to use it to jack up my committed expenses (e.g. mortgage loan). But that is exactly what so many politicians do with 'surpluses.' Hence the appeal of balanced budget rules.