Wednesday, December 12, 2007

California Another $14 Billion Underwater

Arnold let the cat out yesterday. $14 billion. That's $400 per person for everyone in California in overspending. Not the State budget, just the overspending they admit to. They budgeted $2900 and spent $3300. Anyone get their money's worth this year? LATimes here.

Arnold has presided over far more debt issuance and deficit spending than anything Gray Davis got recalled for allowing.

59 comments:

wagga said...

I think we read about this first here on EN. Good work Dawg!

Akubi said...

Damn, I was almost first, but still murst!

Property Flopper said...

There is a reason they refer to Arnie as "Gray Light". He has very similar politics and even kept a large number of the same appointees in place. Nothing changed, just the figure head.

Rob Dawg said...

Wait for the next shoes to drop. CA debt will be close to junk. The State is going to lose some big lockbox fights, particularly transportation. There is going to be an attempt to raise tuition in the college systems. That too will be overturned. There will be several high profile companies and lots of rich people very publicly leaving. These will all result in a very ugly immigrant backlash.

Follow Muni Bond Offerings to see that they can't push this debt crap anymore. Watch the coupon rates. For top tax tiers 5% is like 9% and they still cannot fill the offering.

Here is a straight shooter: for a reasoned if somewhat toned down budget discussion.

Lex said...

At least Arnie's always the tallest guy at the bullshit artists' convention.

Why are we laughing?

Akubi said...

He could rescind the car tax cut and save $6 billion.

Funny Circus Bears said...

As a technical matter I don't think CA debt will be rated junk, but as a practical matter it may be priced close to it due to the rating agencies alchemy being seen for what it is - bad magic!

Rob Dawg said...

FCB,
Yes, the ratings agencies wouldn't dare. They'll rate them at the lowest investment grade whatever that is (Baa2?). The markets will then trade them below par thus making them junk in practice and everyone is happy.

Akubi,
We already know what happens to governors that impose a punitive auto tax. Not only is the money not there ($6b is the cumulative since repeal, not revenue going forward) but it would crush yet another revenue stream for the State; that of new auto sales taxes.

California is totally screwed. Again. Nothing new here folks, move along. Or stay and watch the show. Personally I am hoping this time people "get it" and we remodel upon the old entrepreneurial, libertarian, low tax model that worked for so long.

Face it, it is real hard to kill an idea like California when a schlub like me can make a comfortable life and enjoy moderate success in a place where bad weather means sunscreen not required.

formul8 said...

Gray Davis got smeared because his hands were tied behind his back from Enron's purposeful squeezing of the power supply.

Arnold is just a recognizable bobblehead that cannot do much better.

Sorry folks, but God and Mother Nature both hate California.

Rob Dawg said...

God, Mother Nature and the rest of the U.S. are jealous.

Peripheral Visionary said...

Jealous of what? Of 1950's California? Yes, absolutely. 2000's California? No way. You have to know, at some level, how this this gap will get closed. The Libertarian state isn't going to happen, not given the demographics of California. No way the voters will ever support that. Not while there are Robin Hood fantasies to be entertained.

The reality is that a gap of this size will only get closed by both a reduction of services AND tax hikes. That's the message nobody ever wants to hear, but there really isn't any other option. Reducing services alone never works, because there's no resolution to the argument as to what gets cut--every item on the state budget, from roads to transit to healthcare to law enforcement, ends up in the "needs" bucket, with a totally empty "wants" bucket.

The answer is always small cuts and big tax hikes. CA is going down the MA road--sorry Rob, but at least the weather's better than your former stomping grounds, even if the politics are the same.

Peripheral Visionary said...

(Sadly, "Taxifornia" doesn't work as well as "Taxachusetts")

Rob Dawg said...

PV,
I know you are right. I also know who they will turn on for the taxes they want. Me.

That said I foresee a narrow window of opportunity. I can even see a little reform going a long way such as closing the real estate loophole for corporate ownership. It will equally be interesting to see if the big water and transit expenditures that are not needed can be forced through. The water bond may be the last hurrah.

Californicatia?

Property Flopper said...

Off topic, but funny:

http://sfbay.craigslist.org/nby/hou/507177994.html

I love the quote: "As most of you know, a home, a room or even apartment requires either Winning lottery Tickets, an inheritance or some other form of magical income."

Ah, when did renting an appartment require an inheritance? Isn't that what most of us have jobs for?

Loser.... Sounds like an older Casey.

Edgar said...

Herr Governator is now called Dr. Freeze.

Ogg the Caveman said...

God, Mother Nature and the rest of the U.S. are jealous.

Isn't that a bit like Casey saying that the haterz were all just jealous?

Peripheral Visionary said...

Rob, I will concede that budget crises are useful for reducing some wasteful spending. Legislators know, at a gut level, that it's easier to cut back on the pork than it is to cut back on "third rail" funding like state employee pensions. So that's one positive effect.

It's a little like layoffs. Whenever there's a massive round of layoffs, some of the good people get let go. But many of the people on the list are the slackers and the "what does that guy do anyway" and the "never heard of her" people.

formul8 said...

At 12:02 PM, Rob Dawg said...

God, Mother Nature and the rest of the U.S. are jealous.


Yep, that seems to be the unanimous consensus in Orange County.

Even Jesus couldn't afford to live in Coto de Caza.

Bill said...

Not just CA debt:

"Ask yourself this: if a national government might arbitrarily "freeze" or lower the interest rate being paid on a security, thereby lessening its value, how anxious are you to buy more of that nation's debt?"

http://www.oftwominds.com/blogdec07/unintended-consequences.html

Edgar said...

Governor Freezenator?

Lou Minatti said...

The reality is that a gap of this size will only get closed by both a reduction of services AND tax hikes.

Why is it that businesses can cut back during lean times and deliver the same services yet government cannot? I'll wager that the CA state payroll is padded with thousands of high-paid employees who are not essential.

Centipede said...

It's a little like layoffs. Whenever there's a massive round of layoffs, some of the good people get let go. But many of the people on the list are the slackers and the "what does that guy do anyway" and the "never heard of her" people.
There's also an odd union thing that involves keeping the slackers and dumping those who lack seniority.
Government jobs in California seem to be as secure as Casey's stock picks these days. Should have moved to Wyoming.
Current thoughts: The 2nd and last time I've ever joined a fucking union.
Updating my resume for somewhere else.

Lost Cause said...

casey and group --coming home baby

Lost Cause said...

Humm...the last time we were $14 billion in the hole it WAS A FINANCIAL CRISIS and we had to REPLACE THE GOVERNOR!!@!

H Simpson said...

Time to be honest and face the music Rob. Some pretty bizzare stuff has been going on the West coast the past 10 years.

Freezing values so property taxes do not rise.

Feeding, educating and hospital benefits for hords of illegals so some a-holes can have cheap labor or low cost landscaping.

Giving thumbs up to whack-jobs trying to build 3rd loos for transgenders in all public buildings. Hey what is $30 grand a building?

Continuing to allow developers to build on the sides of hills know to slip every couple of years without a thought to the costs to all the folks in insurance pool that have to pay for this.

People pissing away their savings and mortgaging their futures to live the "high life" in 2000 sqft pillboxes with the Acura suv outside at the curb and that is considered normal.

Time to cash the checks on all that Polyanna thinking.

Ogg hit the nail on the head. Even you are starting to sound like the rest. That scares me.

I work for a west coast company. Been asked twice in past 18 months to relocate from New Hampshire to Bay Area. I have turned it down each time even knowing they would pay for the move, I could sell my Ariens snowblower, and I could go sailing 52 weeks a year.

Once the illegals can no longer get in, lets see if California's population starts to go down like Mass currently is seeing. Then the housing prices are really going to plummet. With no greater fools coming in, and loan rules so tight that crazy people no longer qualify for goofy money, you can see the real estate market is dead for at least 10 years.

The bottom line is the quiet folks who have been paying for all this craziness that have been relegated to the basement by the crazies.

Great show called 1968 by tom brokaw on the History Channel last night. Watch it and then remember all those hippie stoners are now 50-65 and in charge of your state after raising a generation of their spawn.

When the bill comes due, hopefully some people will come out of that basement and steer the state onto a new and successful course.

Things are not bad enough to get people to accept their medicine. Yet.
Give it time.

h.

Property Flopper said...

Apparently you have to kill someone before a "liar loan" becomes illegal:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/13/BAGGTSVHT.DTL

Rob Dawg said...

h simpson,
Why are my words scaring you?

Ogg hit the nail on the head. Even you are starting to sound like the rest. That scares me.

I agree. California is about to take a 2x4 of reality to the forehead. Some things are going to get really, really bad. From that bad i see a narrow window of opportunity for us quiet folk to escape the basement.

One thing you may not like however; California is going to hand the rest of the US one whopping bill as part of the "fix." 20 years of massive imbalance of tax payments is part of the State's problem.

w said...

Just an observation from my little world. There is one county agency that I have to work with here in Ventura County. During the last budget turmoil they closed their west county office and moved everyone to Santa Paula. Also, they were laying people off. All of a sudden the problem went away and they began hiring people back. Over the last ~10 years all of the original people I worked with have retired. These people were very experienced and knew their regulations inside and out. Now there is constant turnover of young employees as the positions require a college degree and pay about $25,000 to start. I often encounter situations where I believe the new employees are giving incorrect information on regulations or are too lax about proper paperwork.

So this county office is paying for the retirement of the entire office that was there 10 years ago, while paying their replacements. These replacements may never be able to do as much work or do it as well because they have such high turnover. Wages are low for the qualifications they require, so what level of the talent pool are they pulling from?

What I wonder is if this situation is repeated throughout the state government? I imagine their solution will be to raise fees.

Property Flopper said...

> I imagine their solution will be to raise fees.

Usually is. Some fees can be raised without causing too many problems, others...

Usually the college / universities (community colleg / CSU / UC) are put up there first. Costs have already jumped at these institutions over the last decade, there gets to be a point of diminishing returns.

Starts to separate the haves from the have nots. College becomes a right reserved only for the wealthy. This will hurt CA far more in the long run than most other cuts.

Property Flopper said...

correct "colleg" to college.

Proof reading is to blame, not the state school I went to. :)

Rob Dawg said...

The California UC, CS, CC system is a sham. The Constitution prohibits tuition so there are fees instead. Now, "fees" are a reasonable adjunct but when the fees grow to $7,000 it is tuition no matter what label they put on it.

Non-California resident students paid an additional $17,820 in tuition and fees in 2005-2006. UC systemwide fees are $6,780, and campus fees range from about $250 to $1,250.

Ouch.

Property Flopper said...

Rob - That's just undergrad. The Haas School of Business (UC Berkeley MBA) is now North of $40k / year. Hastings Law (also UC system) is just under $40.

While I'm all for having fewer lawyers in the world, the three year program runs $120k just in tuition. Now add living expenses (you can not expect to work and maintain any type of GPA at Hastings), and it gets really ugly.

Poor folk need not apply, a class system is being put in place. If you're not born wealthy, you don't get to join the club.

Peripheral Visionary said...

The Universities may be a prime place for a painful correction in expenses courtesy of the budget crisis. "Sham" is a strong word, but not that far off. Universities have been maintaining two sets of financial statements for years: the "tuition" statement, where costs are spiraling and have to be passed on to students; and the "campus development and athletic programs" statement, where there's no shortage of money for any project the administration can dream up.

That's pure accounting fiction, of course, and students have been paying the price for luxury accomodations and light work loads for faculty, and for the development of semi-professional athletic leagues. A state budget crisis has a chance at bringing that under control.

Rob Dawg said...

Harvard University announced Monday a major expansion of financial aid that will reduce tuition bills by thousands of dollars, even for families earning six figures.

The university said it would replace all loans with grants, and spend up to $22 million more annually on aid, mostly targeting middle- and upper-middle class students. Families earning less than $60,000 already pay nothing to attend the world's richest university, with an endowment of nearly $35 billion.

Now, however, parents earning from $60,000 to $120,000 will pay a percentage of their income, rising to 10 percent. Families with incomes from $120,000 to $180,000 will have to pay 10 percent of their incomes.

Harvard also said it would take home equity out of its wealth calculation in financial aid, which should provide a greater boost for students and parents. Overall, Harvard said a typical family earning $120,000 would pay about $12,000 next year, down from $19,000 under current award policies. For a typical family earning $180,000, the bill would drop to $18,000, from more than $30,000.
...For those who pay full tuition, room and board, the price is $45,620.


Cheaper than UC Davis for us if true.

H Simpson said...

Rob

My agreement with Ogg was when you said everyone wants to live is California.

That is no longer the truth and suggests you are also starting to drink the Kook-aid. (please tell us that is not so)

The outflow of residents/businesses to Colorado, Wyoming etc are a canary in the coal mine that has not been watched because off all asset valuation from the housing bubble.

The company I work for is doing everything it can to push CA employees to campusus in Ga or Tx.

Same flawed thinking in Orlando or Vegas. Yes there are folks who want to move there. But not many as you would think and I would suggest the number dwindles as the extent of CA's problems hit.

People will move where the JOBS are and housing is affordable. Your state is pricing itself out of the running just like Mass. Never see either or NJ or NY or Ct showing up on good places for business.

As to Harvard. It will be interesting to see if they can afford this (barely made the papers and TV news this week).

The engine that allows it is their investments. they have billions in their war chest. As those bizzare financial instruments we all read about blow up, Harvard is going to feel it in their endowment cache. They already had one of their wunda-kids financal gurus quit because he guessed wrong.

h.

chickenlittle said...

Lou Minatti said:
"Why is it that businesses can cut back during lean times and deliver the same services yet government cannot?"

Umm, collective bargaining on behalf of the state employees?

Rob Dawg said...


My agreement with Ogg was when you said everyone wants to live is California.

That is no longer the truth and suggests you are also starting to drink the Kook-aid. (please tell us that is not so)


Oh, yes. absolutely. I would never urge anyone at any stage of their life or financial situation to come to California. That's an absolute suckers game. It hasn't been a good idea for at least 5 years, more like 10 years for most.

I'll add: if you are vested in any sort of retirement plan and are 55 or older; run away. I mean it. Run away now. Lock in whatever you've been promised and go. Sell your house "at market." At market is Zillow minus 10% and cutting 5% per month at least until it sells.

California has crossed the event horizon. It must implode and lots of people will get hurt. 5 years from now things will either be looking great or California will be in a permanent funk.

Why do I stay? I pay less (PITI) to live in my 7 digit home what the current going rate for a 2br/1ba apartment costs in rent alone.

Lost Cause said...

California is the most populous state by a lopsided margin. The north is kinda nice, but even the bay area is over-rated. The south is nice, but only if you make accomidations to the desert-like climate, and the crowding and the smog. There are way too many people here. New York lost population for decades, and that is the fate of California. People don't want to waste their lives waiting for other people to move out of the way. The population is dropping, and that is the new reality.

One thing that must be said is the donator status of the state. It is the source of federal taxes, and market revenue. Much money is made here and shipped elsewhere, especially from the south. There are not even any banks headquartered in LA anymore.

chickenlittle said...

"Face it, it is real hard to kill an idea like California when a schlub like me can make a comfortable life and enjoy moderate success in a place where bad weather means sunscreen not required."

That sentiment stands on its own, yet boasting about CA weather is rather like telling others you're pretty- it doesn't sit well with the lesser endowed.

"God, Mother Nature and the rest of the U.S. are jealous."

This sentiment is analogous to how Americans react when unfairly critiqued from abroad.

"Why do I stay? I pay less (PITI) to live in my 7 digit home what the current going rate for a 2br/1ba apartment costs in rent alone."

Except for endowment size, I'm in pretty much the same boat.

Lighten up guys, and remember:

Cay Serin, Serin,
whatever will be will be,
the future's not ours to see,
Cay Serin, Serin

Rob Dawg said...

One of the big misperceptions is scale in that many east coast states would be but minor counties in California.

My biggest fear is that the "fall down go boom" California is experiencing will not cause a reevaluation and new impetus but rather a disappointed shrug and abandonment. If that happens, wait for the apology, what happens is that the southern half of the state gets flooded with lower class Mexicans who will overwhelm any vestiges of the previous culture and society. Now the apology of sorts; that is not a value judgement. It only means California will be poorer and different. This is a displacement phenomena not any sort of commentary as to relative worth of the former or latter.

chickenlittle said...

"what happens is that the southern half of the state gets flooded with lower class Mexicans who will overwhelm any vestiges of the previous culture and society."

A tad nativist to be sure, even in context. Because California has always attracted the poor or those who just wanted a better life (I count myself among them), the thermodynamics of being overwhelmed have always been there. It may have been more managable in the past.
It seems to me that the present situation is more a matter of a general breakdown of the rule of law as we are used to it- nothing racist or nasty.
Today's population is just way to disrespectful of all things orderly- and in a sense, California contributed it's share to that mentality- in my opinion, by slowly eroding basic values like family, without forethought of what to replace it with.

Pleather Murse said...

At L.A. City College (known for its great cinema/tv program staffed by many USC & UCLA alums) the tuition is $20/credit in-state, but you can easily get a full fee waiver by just indicating low-income status. No documentation required, lol. Even better, up till last year you could also apply for a free mass transit pass that was good for the whole school year. Free transportation literally anywhere in the city, bus or subway. It was worth signing up for a class just to get that damn pass which saved you about $500/year courtesy of the taxpayer. Now technically one had to be signed up for 12 credit hours, but you could easily sign up, get the free pass, then drop the classes you don't want.

When the city ended this lovely program recently, due to a breakdown in negotiations between the school and the MTA, students were in an uproar. They showed up at one MTA meeting with signs and the standard chants about education and blah blah blah. That's the thing with freebies, you give them once and people start to expect them as a right.

Lex said...

Sounds rather Camp of the Saints around here.

Two questions Rob: (1) if you're advising people to leave California, where should they go, and (2) if CA has crossed the event horizon, is your house the Esty?

Pleather Murse said...

BTW, despite all the talk of the high human congestion in CA, there are still huge areas of empty desert around here. Folks who live in SoCal know this but if you've spent your whole life on the east coast you can't imagine the vastness of some of these desert spaces. The whole stretch of I-10 between Indio and Phoenix, a couple of hundred miles, is emptier than anything you'll see back east. And if you've ever driven Route 62 through the high desert east of Twentynine Palms you'll know what a really lonely highway is like. There's literally nothing 'til you get to Lake Havasu City.

My favorite though is still the old National Trail Highway, which got bypassed when they built the I-40 between Barstow and Needles. Make sure your car is in good working condition though or you're dead meat out there.

Extra credit to whoever can tell us where the town of Mecca is. (The one in SoCal, not the other one.)

Lost Cause said...

I was just in Mecca! (Now I can die.) It is between Indio and the Salton Sea. I had never seen the Salton Sea, so I went. It did not stink nearly as bad as I thought it would. A little fishy, but all lakes are. Otherwise, a decent place, but a little slummy.

Lost Cause said...

Los Angeles County has a population greater than all but 11 states.

Did you ever see this?

anonymous said...

$400? That's it? I think anyone living in California needs to open up their wallets and contribute more. $400 is a very small price to pay for the privilege of living in the greatest nation on earth in the history of man.

When California Republic declares its independence from the US, much more than $400 will be required of the citizenry. Some will give everything. 400 US dollars is nothing and soon won't even be enough to buy a loaf of bread in America. $400 is bargain value admittance for a chance to partake in the transformation of California Republic to the closest thing known to Nirvana, a nation envied by all, and recognition finally and forever as the worlds true leading nation.

The US can't afford California obviously and has failed miserably in this regard anyway even if they could afford it. There's plenty of US Government property in California so we can just seize that for resolution of the tax payment imbalance. I'd imagine it won't cover it all because the US will suck California dry any chance they get.

anonymous said...

If you go to the Salton Sea, be sure to stop over in Slab City.

Akubi said...

@Lost Cause,
Since they also have an American Indian category, I'm wondering what American ancestry is...

Akubi said...

YAHWEH has shown me that the only way I can take the phenomenon that is happening with me to the next level is by finding an investor.

Funny Circus Bears said...

This LA Times story about Stockton foreclosures gets my vote for funniest headline of the week:

Magical Misery Tour

http://tinyurl.com/2k2yjy

Lost Cause said...

Yeah, Akubi...and all these years I though it was called Mercun.

California, Illinois investigating Countrywide

Lost Cause said...

That Stockton articloe is funny.

"We're bringing in homeowners to get the grass green again,"

[...]

"Why don't they just screw us all at once instead of a little at a time?" said Ponce de Leon, who has found another job and hopes to renegotiate his mortgage.

[...]

His three-hour tour rambled from stately, tree-shaded bungalows close to downtown to sprawling subdivisions on land that just a few years ago was growing corn and alfalfa.

Akubi said...

@Lost Cause,
Are you referring to W-speak?
I'm surprised how many Germans supposedly reside in so many counties (red state areas generally). The Mexican element is no surprise.
@Funny Circus Bears
Sweet repo bus!

Lou Minatti said...

California has crossed the event horizon.

Rob, whether or not it is true, that sentence would make a great headline or soundbite.

Akubi said...

Why is it that the only non-illegals who take the bus around here are Gen-X-ers?

Akubi said...

BTW, these holiday spirit in red stockings tits puzzle me. How can they remain perfectly immobile while she moves about? There's some pretty fucked up shit in there.

Peripheral Visionary said...

@Akubi:
You may not have wanted a serious answer (to the question on the bus-riders, that is), but you're going to get one anyway. And since I am (whether I like it or not) a "Gen-Xer" and I (like it or not) ride the bus, I feel qualified to answer.

The older generations ( the WWII generation and the Baby Boomers) have had years to acquire assets, and can afford to own a car and pay for gas/insurance/etc. More subtly, at workplaces like my own, where parking is in extremely limited supply, they qualify for dedicated parking spaces. So they drive.

The younger generation ("Gen-Y", "Gen-Me") is completely dependent on the older generation. Not just the ones in college ("working" and "college" are no longer heard in the same sentence), but the ones who are "working". The dirty secret is that many, if not most, of the 20-somethings out there cannot afford their lifestyle on the money that they make at their job, which is both a function of their lifestyle and their job, and can only get by thanks to various forms of support from the family. Since the real money continues to come from (typically) the parents, they have no incentive to limit their consumption, and so drive everywhere, regardless of the costs involved.

"Gen-X" is, slowly, coming to our collective senses. They (we) have already been hammered by one economic downturn from the tech bubble and are now getting hammered by a second downturn from the real estate bubble. I actually see a lot more common sense among people my age now than even five years ago, and the priorities are starting to come into line. It's been very difficult to accumulate assets (when they've been so badly overpriced), but there is still a desire for independence, and between independence and lifestyle, it's lifestyle that's getting cut. Of course people of my generation would prefer to drive, but not being able to afford it and refusing to be dependent on the parents, we do what we have to.

Which, sometimes, means riding the bus. (Oh, there's that environmental factor, but let's face it, that's usually a secondary consideration.)

student said...

With all of these foreclosures, where are people living? Is the rental market in places like California and Detroit booming? With tightening of lending standards, I'm wondering if many of those recent 'condo conversions' are going to quickly go back to apartment rental units.