Interesting ideas to save California…

Recently, I was driving down pot-holed, two-lane, non-freeway 101 near Monterey (unchanged since the 1960s) when the radio blared that on a recent science test administered to public schools, California scored 47th in the nation. As I looked at the congested traffic on the decrepit highway and digested the idea that our public schools are competitive only with Mississippi and Alabama, I wondered — is that what we get for a more than 10 percent income tax, 10 percent state and local sales taxes, and the highest gas taxes in the nation?

To sum up why California has yet another deficit — this time a $16 billion whopper — is pretty easy: The number of demonized one-percenters who pay over 10 percent in their salary to the state has been shrinking, as thousands flee with their ideas, energy, business, and capital to nearby no-tax states, and others make less money due to more and more costs and regulations — while the number of those receiving all sorts of state housing, food, medical, education, and legal support is soaring. (In crude parlance, California increasingly is seen by some as a very bad deal, in terms of the sort of schools, safety, transportation, and housing per taxes paid in comparison to Reno, Tahoe, or Austin, but by far more people as a very good deal in comparison to the costs versus benefits in, for example, Oaxaca or El Salvador.)

In the last two decades, the number added to the prison rolls (ca. 115,000) was not that much smaller than the number of new tax-filers (150,000). And of the last 10 million added to the state’s population, 7 million are on Medicaid.

But California being California, such reductionist thinking is taboo, and we are not allowed to make any suggestion that there is a connection between fleeing entrepreneurs, massive and illegal influxes of undocumented foreign nationals in recent years, and record public salaries and unfunded pensions.

So that said, are there any out-of-the-box things California might do to save or make a few billion dollars, other than the obvious measures of slashing spending and dismantling burdensome regulations?

1) Slap a user tax on the some $10–15 billion that is estimated to leave the state in remittances to foreign countries, or at least through executive action make foreign cash remittances grounds for disqualification from state public assistance.

2) Cancel high speed-rail asap.

3) Open up immediately the estimated now off-limits 35 billion barrels of oil off the central California coast, the vast majority of which can be safely and cleanly exploited by on-shore horizontal drilling.

4) Cap the amount one can receive from a California public pension, or multiple pensions at $100,000.

5) Eliminate three-quarters of the thousands of public California board members, who stymie commerce and are mostly costly and unproductive term-limited insider politicians.

6) Mandate one official language for state publications and office business.

7) Cut by 75 percent the number of administrators at the UC and CSU systems (their numbers from 1993 have grown by 212 percent), and pay them at the commensurate twelve-month faculty rate.

Clamp down on the vast underground and untaxed cash economy that has exploded to the point that one can buy tax-free almost anything needed, from a new lawn mower to a four-course meal, at roadside emporia and canteens.

9) Deport the 20,000 plus illegal-alien felons now in California state prisons to their countries of origin.

10) Have George Clooney do another $40,000 per head Hollywood fundraiser, but with Sacramento, not Barack Obama, as the beneficiary.

This is what happens when elected leaders do not pay attention to economic fundamentals.

Gov. Jerry Brown announced on Saturday that the state’s deficit has ballooned to $16 billion, a huge increase over his $9.2-billion estimate in January.

The bigger deficit is a significant setback for California, which has struggled to turn the page on a devastating budget crisis. Brown, who announced the deficit on YouTube, is expected to outline his full budget proposal on Monday in Sacramento.

“This means we will have to go much further, and make cuts far greater, than I asked for at the beginning of the year,” Brown said in the video.

Lawmakers and others were hoping that a rebounding economy would help the state avoid steep cuts to social services. But revenue in April, the most important month of the year for income taxes, fell far short of expectations, leading to a shortfall of at least $3 billion in the current fiscal year.

The state has also spent $2.1 billion more than expected, according to the controller, further worsening California’s financial health.

Advocates involved in budget discussions say they expect deeper cuts to social services than Brown originally proposed in January. Union officials are also in negotiations with administration officials about ways to reduce state payroll costs, an issue that wasn’t on the table earlier this year.

Brown has said there will be even deeper cuts, mostly to public education, if voters do not improve tax hikes in November. He is seeking a quarter-cent increase in the state sales tax for four years and a  seven-year hike on incomes of $250,000 or more that will range from 1 to  3 percentage points. He says the measure would raise $9 billion in the  upcoming budget year

Another make work project for New York paid for with more debt.    Tax relief, roll back work rules and lower energy costs will get New Yorkers back to work.

New York Governor Andrew Cuomo is investing $800 million to enhance the energy efficiency of state and local government buildings, with a goal of reducing consumption by 20 percent over the next four years.

The investment will be funded through debt issued by the New York Power Authority, which coordinates the distribution of renewable energy to businesses, nonprofit organizations and government entities, Gil Quiniones, its president, said today at a press conference in Albany.

“Accelerated and increased investment in energy-saving technologies will result in significant benefits for the environment,” Quiniones said. “These measures will also create jobs, keep energy dollars in New York state and free up resources for the essential services of tax-supported public facilities.”

About $450 million will be spent on updating state buildings, and $350 million on projects for local government, school district and public hospital facilities, he said. The power authority will issue as much as $800 million in debt to finance the projects, and repay the bonds from the resulting electric-bill savings, Quiniones said. The tax-exempt bonds will be sold as needed, he said.

The upgrades include automated energy-management systems, electric motors and new lighting fixtures. They are expected to cut greenhouse-gas emissions from public buildings by 8 metric tons and create thousands of jobs, Quiniones said.

Chicago Mayor Rahm Emanuel announced a similar plan last month for the Windy City to fund as much as $225 million in energy-efficiency upgrades using a mix of public and private investment.

To contact the reporter on this story: Freeman Klopott in Albany, New York, at fklopott@bloomberg.net

For all the good news stories and political mailings we get about how things are changing in Albany, we have a long way to go….

In Chief Executive’s eighth annual survey of CEO opinion of Best and Worst States in which to do business, Texas easily clinched the No. 1 rank, the eighth successive time it has done so. California earns the dubious honor of being ranked dead last for the eighth consecutive year.

This year, 650 business leaders responded to our annual survey, up from 550 in 2011. CEOs were asked to grade states in which they do business among a variety of areas, including tax and regulation, quality of workforce and living environment. The Lone Star State was given high marks foremost for its business-friendly tax and regulatory environment. But its workforce quality, second only to Utah’s, is also highly regarded.

Florida moved up from number three last year to number two. Last year, Florida Gov. Rick Scott penned a tongue-in-cheek letter to Texas Gov. Rick Perry, warning him that Florida is coming after the Lone Star State’s top ranking. Since Scott took office, his administration has enacted business tax and regulatory reforms that have contributed to the creation of more than 140,000 private sector jobs and an unemployment drop of 2.1 percentage points last year—one of the biggest decreases in the nation.

It is perhaps no coincidence that Texas and Florida have the highest net migration of people to their states from 2001 to 2009. (By contrast, New York and California lost over 1.6 million and 1.5 million in net migration out of the states, respectively, over the same period.) People migrate in search of employment, but this can cut both ways. Texas is justly proud of adding to its employment numbers, something Gov. Perry cited numerous times during his brief campaign for the Republican Presidential nomination. Between June 2009—which marked the official end of the recession—and July 2011, the number of jobs increased in the state by 328,000. Nationally, the job growth in that time period was 697,000 according to figures from the Bureau of Labor Statistics. This translates to Texas jobs making up 47 percent of the national net job creation. However, neither Texas, nor the nation, is adding jobs at a pace fast enough to bring down unemployment to historically normal levels. And Texas’ unemployment rate—while still below the national average—is now higher than that of 26 states.

North Carolina, Tennessee, Indiana, Virginia, South Carolina, Georgia and Utah held their positions in the top 10, with Indiana moving up a notch to fifth. CEOs indicate that workforce quality is the state’s single greatest strength, and since it became the 23rd right-to-work state last year, the Hoosier State is likely to punch above its weight competitively in the future. “Indiana is like a breath of fresh air,” volunteered one manufacturing CEO. “I have operated on both coasts, the Southeast and Chicago, and Indiana is where I will keep my manufacturing operations.”

It may be no accident that most of the states in the top 20 are also right-to-work states, as labor force flexibility is highly sought after when a business seeks a location. Several economists, most notably Ohio State’s Richard Vedder and Harvard’s Robert Barro, have found that the economies in R-to-W areas grow faster than other states, have higher employment and attract more inward migration. Governor Scott Walker’s battle with the unions in Wisconsin (See “Will Wisconsin Rise Again?”), a state that edged into the top 20 this year for this first time, demonstrates that the struggle for a pro-growth agenda can be contentious. As one Badger State business leader remarked, “Finally, Wisconsin is headed in the right direction.”

Although often eclipsed by Texas, its next door neighbor, Louisiana, is the Cinderella of business improvement. In 2006, it ranked 47th—where Massachusetts is today. And Katrina didn’t help matters. But since then it has climbed steadily up the ranks so that it is now 13th—up from 27th last year—the biggest leap in a single year of any state. “In Louisiana there is an active government push to reduce taxes and regulation and to encourage new industry to relocate to the state,” commented one chairman. “This was valuable for one of our companies, which decided to make the state our headquarters.” Other chiefs point to the big strides the state has made in workforce training and economic incentives. Its economic development office is also aggressive in luring disaffected businesses from the Northeast and California.

“I have operated on both coasts… and Indiana is where I will keep my manufacturing operations.”

California’s enduring place of perpetual decline continues in this year’s ranking. Once the most attractive business environment, the Golden State appears to slip deeper into the ninth circle of business hell. The economy, which used to outperform the rest of the country, now substantially underperforms. And its status as the most ruinously contentious place to operate remains undisturbed in eight years. Its unemployment rate, at 10.9 percent, is higher than every other state except Nevada and Rhode Island. With 12 percent of America’s population, California has one-third of the nation’s welfare recipients. Each year, the evidence that businesses are leaving California or avoid locating there because of the high cost of doing business due to excessive state taxes and stringent regulations, grows. (See “Eastward Ho!”) According to Spectrum Locations Consultants, 254 California companies moved some or all of their work and jobs out of state in 2011, an increase of 26 percent over the previous year and five times as many as in 2009.  more here…

 

Here is some one that gets it.   We have to look at how our town and villages are being driving into bankruptcy by unsustainable tax increases.   The cost of government and schools is reflected in every item or service we buy.    Cable, cellular service, bananas, insurance and list goes on.    When will we return to some sort of financial normalcy?   I am not sure….

Christie: I Will Sacrifice My Career To Take On Teachers Unions

Pensions?  Don’t have the money?  Just don’t pay it and pretend all is well….

This month, the Teachers’ Retirement System of the State of Illinois made a dire announcement to its members. TRS, which covers most public-school teachers in Illinois outside Chicago and has more than 360,000 members, said the following:

“If the General Assembly does not continue to provide all of the funding called for in state law, calculations done by TRS actuaries show that the System could become insolvent as soon as 2030. Preventing insolvency may include significant changes for TRS — new revenues must be generated and if they are not benefits may have to be reduced.”

The teachers’ fund is one of the country’s worst-financed statewide pension systems, reporting that it is only 47 percent funded. And that’s if you buy the system’s rosy accounting assumptions, including that it will achieve 8.5 percent annual returns on its assets. This level is tied for the most aggressive investment assumption among state pension funds in the country, and the fund has had to get creative in an effort to meet it. Pensions & Investments magazine says it has the fourth-riskiest pension investment portfolio in the U.S., with less than 17 percent of its investments in fixed income and cash.

Teachers Left Hanging

Perhaps the teachers’ fund will be fabulously lucky, and rich investment returns will cover pension costs so taxpayers won’t have to. But the odds of that are vanishing. Indeed, the system’s funding status is so poor that it achieved a 23.6 percent return on investments in 2011 and still managed to shave only $2 billion off its $46 billion unfunded liability. And it’s not as though the fund can make such gangbuster returns consistently — in 2009, it returned negative 22.7 percent.

Closing the TRS funding gap — and the gap at the State Retirement Systems of Illinois, which is only 36 percent funded– will depend on taxpayers’ willingness to start paying far more than they ever did for pensions. And as the TRS statement makes clear, that is far from a sure bet, meaning that pensioners may see their benefits cut.

Public pensions are a problem all over the country, but they are a special problem in Illinois, mostly because the state has failed, for decades, to make proper contributions into its pension funds. Illinois, more than most states, has used its pension funds as a vehicle for off-balance-sheet borrowing, financing high spending without high taxes by making unfinanced pension promises.

No individual is more personally responsible for allowing this to happen than Rod Blagojevich, who became governor in 2003 and who was impeached in 2009. Illinois is not unique because it has struggled to manage its budget in the recession; many stateshave similarly failed to act responsibly in the last four years. It is much more notable as a place that let its fiscal problems spiral out of control while the economy was strong, leaving an unusually daunting mess for lawmakers to clean up in the recession.

Of course, he didn’t act alone. Illinois made bad pension decisions before he was elected, and the Legislature approved his worst ideas. But the governor pushed other lawmakers to give in to their most irresponsible impulses.

One of his first initiatives was a pension-obligation bondplan. For years, Illinois had been struggling to come up with enough cash to make required payments into its pension system (even though its law stating what was “required” was more lax than what was recommended by the Governmental Accounting Standards Board). Blagojevich proposed that the state shore up its pension funds by issuing $10 billion in bonds and investing the proceeds in the pension fund.

No Bond Windfall

In principle, nothing is wrong with pension-obligation bonds. They simply swap one form of indebtedness (unfunded pension obligations) for another (bond debt). But in practice, when a jurisdiction issues these bonds, it is usually up to no good, and this was no exception.

The pension funds would invest the proceeds in stocks and bonds with a target investment return of 8.5 percent a year, but the interest on the bonds was only about 5 percent. This was marketed as a free lunch, but it wasn’t one: Interest payments were fixed but Illinois taxpayers were on the hook to pay if the assets underperformed, which they did.

A second problem was that the governor used the expected free lunch to justify putting only $7.3 billion of the $10 billion in bond proceeds into the pension fund. The remaining $2.7 billion went to pay bond interest and to cover part of the state’s required pension contributions in 2003 and 2004 –freeing up money to spend on other initiatives, including an aggressive expansion of Medicaid and the Children’s Health Insurance Program. This meant that when you added together the unfunded liability and the outstanding balance on the bonds, the plan widened Illinois’s overall funding gap for pension benefits.

Even after the proceeds from the pension-obligation bonds had run out, Blagojevich and the Illinois Legislature continued to underpay the required pension contributions, by $300 million in 2005, $1.2 billion in 2006 and $1.1 billion in 2007.

As the recession hit, the Legislature started passing budgets it knew were unbalanced, causing the state to run out of cash mid-year and run up billions of dollars in unpaid bills. Periodically, the state would issue general-obligation bonds to pay off the bills backlog, again shifting pension liabilities into bond debt.

Even as the state budget fell apart and he spent profligately, Blagojevich, a Democrat, steadfastly opposed increases in the income or sales tax. He even alleged that his impeachment on the grounds of having tried to sell Barack Obama’s Senate seat was a plot to get him out of the way so that the Legislature could raise the income tax.

Income Tax Increase

Starting after the 2010 election, with Blagojevich gone, the Legislature did raise the income tax, from a flat 3 percent to a flat 5 percent. But Illinois’s budget situation was so dire that even a 66 percent increase, which raised general fund revenues by about 20 percent, still left an annual gap of more than $1 billion.

In 2010, Republicans gained seats in the Legislature and have blocked any further general-obligation bond issuances to close budget gaps. As a result, the unpaid bills backlog has reached more than $8 billion, and there is no plan to pay it off. Because of the tax increase, at least the backlog is no longer growing very much, and vendors can expect to be paid on a rolling basis after waiting about five months.

But the state hasn’t taken the steps it needs to reform its precarious pension system. Michael Madigan, the Democratic speaker of the state Assembly, has belatedly become an advocate for aggressive pension reform, but Governor Pat Quinn and public-employee unions stood in his way through 2010 and 2011. The state did sharply reduce benefits for workers hired after 2010, but material savings from those changes won’t materialize for decades, and the state used those estimated savings to shave a few hundred million dollars off its annual required pension contributions in the near term.

Much of the current trouble would have existed with or without Blagojevich. But when fiscal times get tough, it falls to the governor to tell the Legislature “no.” In the middle of this decade, while neighbors like Indiana (BEESIN) were getting their fiscal houses in order, Blagojevich was the one telling the kids in the Legislature to eat all the candy they wanted and stay up as late as they felt like. And that has left lawmakers with a much bigger mess to clean up now.

(Josh Barro is a contributor to Forbes.com and a fiscal policy analyst based in New York City. The opinions expressed are his own.)