I'll Bring the Tar, You Bring the Feathers.

The California budget crisis continues.

When last we looked at the California budget, legislators were trying to make the tough choices. Cut prison funding, or schools? In-home care for the elderly and disabled, or raise taxes? Oh wait, Governor Schwarzenegger and the California GOP refuse to pass a budget that raises taxes, so let’s wipe that last option off the table. Yes, let’s limit our choices, how free market of us.

You probably haven’t been personally affected by the budget crisis, so let’s see who is shall we? They keep calling it a crisis, so someone must be getting screwed somewhere. The state government has been sending out IOUs since they (almost) ran out of cash at the beginning of the month. Specifically, 101,930 IOUs have been sent out, as of Friday morning, equaling more than $389 million in payments. (http://www.calculatedriskblog.com/2009/07/california-iou-update_11.html) The state plans to mail out more than $3 billion in IOUs by the end of the month.

Granted, the IOUs have a 3.75% annual interest rate, which is way better than anything I’m getting in my regular savings account at the moment, but most major banks stopped accepting the IOUs on Friday, maybe Saturday depending on which newspaper you read. On October 2nd the state plans to redeem the IOUs for the small percentage of people and businesses who can afford to hang on to them that long. Woah, woah, woah, back up for a second. October 2nd? Oh, even better, the October 2nd deadline is “Assuming there is adequate cash in the Treasury” according to http://www.sco.ca.gov/5935.html. You’re saying this really might not be resolved before October 2nd?

Who’s getting these IOUs anyway? People who are just now receiving their personal income tax refunds, local governments, and small business vendors top the IOU list (along with the disabled, no joke, California is officially picking on the small groups of people who can barely defend themselves). Who isn’t getting an IOU? Legislative employees, appointees, and legislators are getting paid in cash. For an incomplete but interesting list of “Haves and Have-Nots” check this out: http://blogs.reuters.com/felix-salmon/2009/07/01/california-the-haves-and-have-nots/.

The true tragedy of the whole budget crisis really lies with the small business owner. According to the state’s department of general services, California has annual contracts with at least 14,000 small companies (most based in California) for $2.7 billion. About $140 million of the $3 billion in IOUs expected to be issued in July will likely be issued to those small businesses. Given the current state of the economy, this is exactly the group that can’t afford to wait until October 2nd to cash in their IOUs. For more specifics, and a couple really sad stories that will really make you want to run out and start your own business, read this article: http://money.cnn.com/2009/07/12/smallbusiness/california_small_vendors_ious.smb/index.htm?section=money_latest.

In yet another effort to float some more cash for the month, the state controller delayed $4 billion in payments, which were scheduled to go out on Friday, July 10th, to California public schools. I’ve asked before, and I’ll ask it again: Why do we hate education so much in this state??

Even more disturbing, as of Sunday afternoon the apparent elephant in the room in the California legislature debate (according to http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/07/12/BA4L18NC36.DTL) is whether or not to suspend Prop 98, a constitutional amendment guaranteeing a minimum level of funding for schools. The proposition, passed in 1988, commits the state to spending at least 40% of the general fund on schools. Although it’s a favorite target for legislators looking to blame the budget crisis on something other than themselves, I’d like to know how they feel about the tax cuts that have cost the general fund $100 billion since 1993. Who thought it would be a good idea to need 2/3 legislative approval to raise taxes, but only 1/2 to approve a tax cut? Of course we have no money!

And, of course our legislators don’t have the cajones to pick on someone their own size, instead going after those with no time (small business owners), no capacity (the mentally and physically handicapped), and no idea (kids). I’m so proud.