Friday, February 22, 2008

Terminator's Drastic Cuts

Governor Arnold Schwarzenegger and California's Budget

The Red Ink State
Let's start with the culture of overspending in Sacramento. State outlays have nearly tripled to $142 billion this year from $51 billion in the early 1990s. After the technology bubble burst in 2001, the state's deficit swelled to $20 billion. Voters recalled Gray Davis from the Governor's mansion in favor of Mr. Schwarzenegger, who promised to "cut up the state's credit card." In Arnold's first year, the budget was held in check, but the state still issued $9 billion in "revenue bonds" rather than shrink the size of government....

Even with the new deficit estimates, the Governor and legislature are promoting a new government health-care plan at a cost, coincidentally, of $14 billion. The state Assembly recently passed the plan. State Senate President Don Perata, a Democrat, advises that to launch this new health-care entitlement now would be both "impractical and impolitic." He's right, but the politicians are floating a $2 a pack increase in the state's cigarette tax to pay for it. So a shrinking number of smokers would be tapped to finance a growing number of citizens dependent on the state for health insurance.

One reason for the budget deterioration is falling home prices. The housing bubble sent the median home price to $500,000 last year in California. At the height of this real-estate euphoria, fewer than one in 20 residents could afford to buy the average home in San Diego and Los Angeles Counties. Now the state is enduring the inevitable correction, with prices tumbling by double digits in some markets. Homeowners are demanding a revision of their property tax assessments, which is only adding to the revenue drought.

California is also losing many of its most productive workers
. Over the past decade nearly 1.5 million more Americans fled California than arrived; 275,000 left last year alone, according to Census Bureau data. An influx of foreign immigrants has maintained the state's overall population, but those departing include upwardly mobile middle-class families moving to lower-tax states with more affordable housing.

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