CA Running Massive Cash Deficit

JAN. 12, 2012


The California state government’s general fund is running a staggering cash deficit of $21 billion on an $88.5 billion budget. The number comes from Controller John Chaing just-released financial statement for December 2011. The bad news came in the face of strong national consumer spending and private-sector employment gains

This imploding financial condition is a reflection of how California’s high business taxes and excessive regulations are accelerating the trend of businesses abandoning the state.  According to Chaing, “While we saw positive numbers in November, December’s totals failed to meet even the latest revenue projections.  Coupled with higher spending tied to unrealized cost savings, these latest revenue figures create growing concern that legislative action may be needed in the near future to ensure that the State can meet its payment obligations.”

The above are “code words” that the state is in financially dysfunctional and it’s getting worse.  Compared to the previous year, California revenue of $39.4 billion for is down by 11.2 percent for the fiscal year to date (July – Dec. 2011). That’s due mostly to a 26.4 percent nose dive in sales tax collection. And state spending of $52.3 billion is currently running 33 percent higher than the state’s revenue.

Tax Increases

The controller does not seem impressed that Gov. Jerry Brown and the Legislature’s only solution to fix this budget mess is to relying on voter willingness to approve an initiative to raise the already hefty sales tax they pay by 13 percent and add another surtax on the wealthy to generate $6.9 billion in revenue.

Even if the public shocks pollsters and actually passes the tax increase, the non-partisan Legislative Analyst’s Office calculated the initiative would only generate $4.8 billion per year.  Prior to the Controller’s grim report of a $5.2 billion budget miss, the LAO had already estimated that state’s revenue would be $3.7 billion below forecast and “trigger” $2 billion of automatic budget cuts to K-14 education.  The LAO’s estimate of a $13 billion deficit next year, due mostly to constitutionally required “settle up” payments for short-checking public schools in prior years, now looks like a $20 billion deficit.

California’s budget projections are so consistently whacky that the Governor closed the California Recovery website this summer to avoid ridicule regarding its ludicrously optimistic recovery projections.  Despite creating one of the most unfriendly business climates in the nation, for 20 years California’s socialist politicians were able to do the “la vida loca” spending on the back of an epic real estate boom.  With the real estate bust now in its fourth year, California ranks third in the nation in foreclosures. And according to the Foreclosure Radar Report, it is one of only two states in the nation where foreclosures increased in December.

Credit Ratings

The credit rating agencies will undoubtedly take a very hard look at downgrading California’s municipal bond debt, which is already the worst rated in the nation at only two notches above junk.  But the budget disaster also spells bad news for the credit ratings of California local governments.  Last year the Legislature passed a law striping $1.7 billion per year from state’s 400 redevelopment agencies to augment its own budget shortfall.  Moody’s Investor Services immediately put $11.6 billion of California tax allocation bonds on review for a possible downgrade.  Moody’s stated, “If left unchanged, this law would be significantly negative for bondholder credit.  This legislation could result in multi-notch downgrades on bonds of the dissolved redevelopment agencies.”

Perhaps California’s budget problems can be best understood from a Fox Television interview of Joseph Vranich, president of the Business Relocation Coach. He makes his living moving companies out of California. (See video below.) He said businesses leave to avoid “high businesses taxes and excessive regulations imposed on commercial enterprises of all types.  Costs are illustrated by the fact that a business leaving the city of Los Angeles for a nearby county can save up to 20 percent in costs while moving to another state can save up to 40 percent in costs.”

Vranich pointed out that, in the first half of 2011, there were 129 companies with 100 or more employees that moved out of the state.  This averages 5.4 larger companies leaving for “greener pastures” per week, versus 3.9 per week in 2010 and only 1 per week in 2009.  The top relocation destination is not China, but  the neighboring business-friendly states of Texas, Arizona, Colorado, Nevada and Utah.

Other People’s Money

British Prime Minister Margaret Thatcher, in a TV interview in 1976, famously said, “Socialist governments traditionally do make a financial mess.  They always run out of other people’s money.  It’s quite a characteristic of them.”  If she were to move to California 35 years later, she would add, “Or else the other people will take their money and just leave!”

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Joseph Vranich video:

Why Businesses Move Out of California:


Write a comment
  1. RT
    RT 12 January, 2012, 16:48

    California is tax addicted, and its people are addicted to Government Services. California will not hear the calls for it to get itself right. Like all addicts, they do not see they have a problem. California’s tax addiction has been ignored for too long. Now California is about to OD and the government is crying out for a new source of taxes for its addiction. However, the fact is that no matter how much of our taxes are coming in to the government, it will never be enough. They are addicted! I will miss California when it OD’s. Too bad that no one was willing to force it into rehab.

    Reply this comment
  2. Bob
    Bob 12 January, 2012, 17:41

    “Even if the public shocks pollsters and actually passes the tax increase, the non-partisan Legislative Analyst’s Office calculated the initiative would only generate $4.8 billion per year.”

    Makes no never mind to your typical DemoNcrat.

    They will come right back at ya with demands for ever more tax increases.

    To a DemoNcrat tax increases are ALWAYS the answer.

    Reply this comment
  3. David H
    David H 12 January, 2012, 19:58

    What we really need is more unions to control more labor markets and earn more money, plus more regulations, along with more government workers to earn more money enforcing the regulations. (Sarcasm)

    Reply this comment
  4. Eyeamok
    Eyeamok 13 January, 2012, 04:17

    I don’t think California has anything to worry about, just because 5 companies a week move to another State with their Employees doesn’t matter much. I drive all over SoCal regularly and have notice 2 very large businesses taking over commercial real estate on an unprecedented scale. I see their signs everywhere “literally”. I am not sure what they do or make or sell but when they open, by the amount of commercial Real estate and buildings they are taking over it should employ millions of people. Anyway the names of these two companies are “For Lease” and ” Space Available”, and they are literally taking over in Souther California.

    Reply this comment
  5. Barb
    Barb 13 January, 2012, 06:40

    Good one eyeamok! Sad but true!

    Reply this comment
  6. queeg
    queeg 13 January, 2012, 08:42

    Each year about 30% or so of public school students do not graduate….phenomena for many years!

    Check ball games, swap meets, mall common areas, fast food joints, pop star concerts….they are there in droves.

    They cannot compete in a tech economy; there economic growth prospects are negligible….

    They rely on government services…tax the rich sounds great…they feel the love from boundless welfare groups funded by government, the benevolent one!

    Wake up…there are millions and millions of them…they are eyeing you right now!!!

    Reply this comment
  7. stevefromsacto
    stevefromsacto 13 January, 2012, 10:23

    Couldn’t wait to pass this along to help dispel the Rabid Right’s myths about welfare. Read and learn.

    “While a common perception of welfare is a program that supports poor, unproductive people, the program has morphed over the past decade into one that provides not just cash grants but job training and services to help people enter the workforce. And more than anything, it is a program that supports children. More than 1 million of the 1.4 million people helped by the program are children. It is also a program which, while never a major part of the state budget, has shrunk dramatically over the past generation.” (columnist Daniel Weintraub)

    But hey, let’s make those 1 million kids get jobs like the rest of us God-fearing ‘Mericans.

    Reply this comment
  8. David H
    David H 14 January, 2012, 19:53

    Lets take all that government pension money and turn the money into jobs for the working poor that have kids. Sounds fair.

    Reply this comment
  9. doug
    doug 16 January, 2012, 09:48

    I attended my local neighborhood watch meeting last week. we had our local city rep from long beach, CA attending. he stated that all RDA’s from the state were being pulled by gov. brown and that all money has dried up. the city took posession of the lands that RDA had. now it will have to sell it. but, also mentioned was the huge pension problem with the city and its 9 employee unions it has to deal with. they are expected to raise local utility taxes and make the usual city wide program cuts for 2012.
    i dont think my neighbors understand where the money comes from with all the new bike lanes they added downtown.
    We still havent paid for it yet.

    Reply this comment

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