What's new

State budget deficits (1 Viewer)

Steve Ridges

Stunt Coordinator
Joined
Jul 26, 2000
Messages
180
First, lets try to keep this from turning political and pointing fingers. My question is rather simple. I keep hearing about several states that have a huge budget crisis. I think California is around 38 billion. Can someone explain how a state can get that far into debt? Is it real debt or only something on paper? How are figures like this calculated? The way some people make it sound is like a state has a checking account somewhere that's 38 billion overdrawn. Surely thats not the case right? Are there state employees that aren't getting paid? My state of WA is around 4 billion in the red yet we still have police, fire, etc. and seem to be functioning just fine. I'm sorry if this is a stupid question but please leave the politics out of your responses and help me understand.

Thanks,
Steve
 

Julian Reville

Screenwriter
Joined
Aug 29, 1999
Messages
1,195
Debt is debt is debt: obligations to pay, either static or over a period of time, that exceed your current assets and projected income over the same period of time = deficit.

The only way to overcome it is to decrease outgo (in the case of a government = cut state salaries,Terminator terminate employees, cut programs) or increase ingo income (read my lips: raise taxes).
 

LewB

Screenwriter
Joined
Feb 11, 2002
Messages
1,282
I think a lot of the debt is mostly bonds that are issued to pay for stuff that the state needs.
Let's say that the budget is $1 billion more than the anticipated revenue. The state can issue bonds to raise the money they need. Problem is that they need to pay dividends to the bond holders for the privilege. The dividend rate is determined by a rating service like Moody's or Standard and Poors. The less in debit a state (or anyone issuing bonds for that matter) is, the lower the dividend (or premium) they are forced to pay for the money. The more bonds you issue, the higher the interest rate you need to pay due to the higher likelihood that you will not be able to pay the money back. The more you pay out in dividends (politely called 'debit service'), the less you have to run your state with. See if you can get a break-down of how your state tax dollar is spent and see how much goes to debit service, you might be shocked.
Remember 'junk' bonds? they pay very high interest because there was a very real risk that the investor would lose the principle they invested.
One last thing that might get this thread closed:
I think there is also a phenomenon called 'Federally Mandated' services. The Federal gov tells the states that they MUST provide certain services or else lose other federally supplied stuff. The state then must provide the service whether or not they feel they should (extra state taxes). Then the state does the same thing to the cities and so on. Ever wonder why your local taxes seem to be rising faster than the state or federal, it might not be the fault of your local politicians. Let's see, what day this year did we need to work to just to pay our taxes ? :angry: :angry:
 

Todd Hochard

Senior HTF Member
Joined
Jan 24, 1999
Messages
2,312
So when they say California is 38 billion in debt, does that mean for this year
My understanding is yes. That's just for this year.
For comparison, at the Fed level, they talk of $450 billion deficits. That's for this year. The total National Debt is slightly over $6 Trillion (in the form of all manner of savings bonds, and treasury securities).

Todd
 

Bob Graz

Supporting Actor
Joined
Sep 26, 2002
Messages
798
Debt is debt. California apparently grossly underestimated the amount of revenue coming in this year vs expenses. Lot's of states went on spending sprees during the boom period we had. When the boom went bust they were left with lot's of new spending programs and significantly less revenue to cover them. Yes, bonds can be a piece of the problem as you're basically mortgaging your future for spending today. Used properly bonds can be a useful tool. Misused however they create long term financial difficulties that can cause an inability to deal with todays problems due to paying off projects that were completed years ago. Anyway, my simple answer to a very complex issue.
 

Steve Ridges

Stunt Coordinator
Joined
Jul 26, 2000
Messages
180
So at the end of the year, will people really not get paid or will the state borrow against the next year and so on etc. When does the debt ever really become due?
 

Seth--L

Screenwriter
Joined
Jun 22, 2003
Messages
1,344
Though I don't live in CA, from what I've read, it sounds like a big part of the problem is the fact that Enron defrauded the state out of billions, and that state law predetermines where a good portion of the budget will be spent, making it difficult to curb the growing debt.



Like other states, I'm sure that social programs will be cut, state workers will be laid off, and salaries will be frozen (overtime might also vanish for many workers). People will be paid for the number of hours that they've worked (the only way the state could get out of that is declaring bankruptcy I suppose).
 

Philip Hamm

Senior HTF Member
Joined
Jan 23, 1999
Messages
6,874
Also, most states' tax income is determined by federal tax rates. So when the federal government lowers taxes, the states involuntarily do as well.
 

Tommy Ceez

Second Unit
Joined
Jul 16, 2002
Messages
436
California increased spending at a rate much higher than the population increase, all while depending on tax revenues to remain consistent with what they were pulling in during the high revenue, tech heavy 90's.
Californias deficit is a huge problem due to the fact that its 38bil out of a state budget of 99bil. The national debt is a much smaller percentage of the GDP
 

Malcolm R

Senior HTF Member
Joined
Feb 8, 2002
Messages
25,141
Real Name
Malcolm

Only if they choose not to make adjustments to the state tax rate. Vermont has twice adjusted state tax rates to deal with Washington's fiddling. State tax has remained level while federal tax has gone down.

We've actually managed to reduce our total state debt by 13% over the past five years and have had balanced annual budgets for several years in a row. The economy's not great here, but we aren't looking at any Draconian cuts either.
 

D. Scott MacDonald

Supporting Actor
Joined
Oct 10, 1999
Messages
545
So what happens when a state files for bankrupcy? Has this ever occurred before? Companies can fold up and go away, but I don't see California going away as a state (maybe it will merge with Oregon :)).

Is it simply to protect the state from it's creditors? How does it affect it's bonds?
 

Julian Reville

Screenwriter
Joined
Aug 29, 1999
Messages
1,195
(maybe it will merge with Oregon ).
More likely Bill Gates will just offer to buy the state at a discount, rename it Microsoft Californidos, and bundle a square foot with each copy of an OS. Every time you boot up, you have to pay $1 towards the state deficit.
 

Malcolm R

Senior HTF Member
Joined
Feb 8, 2002
Messages
25,141
Real Name
Malcolm
Oh, if it gets bad enough I'm sure there'll be a massive government bailout at the expense of the rest of the country's taxpayers and other states who've managed to keep their finances in order.
 

Eric_L

Senior HTF Member
Joined
Nov 2, 2002
Messages
2,011
Real Name
Eric
Like other states, I'm sure that social programs will be cut, state workers will be laid off, and salaries will be frozen
If the state didn't cut but just kept costs level for three years then their troubles would solve themselves. Unfortunately, that is nearly impossible for any elected legislature to do. Most departments would consider 'no increase' to equal 'a cut'. Weird, huh.

I also am annoyed because often cuts are in the wrong place. For example consider a school; If you were to open a private school you'd start first with hiring a teacher. Then maybe add more as you grow. Eventually you'd need a janitor and groundskeeper. Eventually a librarian, a nurse and a cafeteria cook. Finally you'd add administrators. Of course, when there are cuts the administrators are often the LAST to feel it, even though they are furthest removed fro the student and least needed for an education...
 

Patrick_S

Senior HTF Member
Joined
Apr 1, 2000
Messages
3,313
This theory was proved during the Reagan administration. A substantial tax cut was passed, revenues went up - every year. Unfortunatly, spending went up even more and we had huge deficits.... Blame congress for that.
Sorry but I lived through those years and that statement is just not accurate.

Unfortunately one of California's biggest problems is the ballot proposition process. It is relatively easy to get a spending proposition in California and regardless of the state's current fiscal problems Californian's just can't seem to ever say no to a spending proposition when it is on the ballot. Heck if you spin any spending proposition as "it's for the children", or "it for seniors" or "it for the vets" it is guaranteed to pass.
 

Eric_L

Senior HTF Member
Joined
Nov 2, 2002
Messages
2,011
Real Name
Eric
It is quite accurate indeed. The federal budget is drafted in congress, not by the president - that is taught very early in school. Also, fiscal revenue records are available at http://www.irs.gov if you doubt the revenue history. There is no flaw to my statement unless you just dislike the facts. Being alive through those years does not qualify your statement adequately. Or at all for that matter.

I do appreciate your contribution regarding propositions. Florida has a similar problem. Recently FL even made an ammendment to the state constitution that protects swine. That is pigs, not lawyers. I'm not sure why other livestock was excluded.
 

Michael Reuben

Senior HTF Member
Joined
Feb 12, 1998
Messages
21,763
Real Name
Michael Reuben
I think Orange county or one of those in the LA area did back in the 80's junk bond crisis.
It was Orange County, but the following decade. Orange County got hurt very badly by the collapse of what was then known as the derivatives market in 1994, after a series of interest rate hikes by the Fed.

M.
 

Users who are viewing this thread

Top