State budget deficits

Discussion in 'After Hours Lounge (Off Topic)' started by Steve Ridges, Aug 12, 2003.

  1. Steve Ridges

    Steve Ridges Stunt Coordinator

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    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
     
  2. Julian Reville

    Julian Reville Screenwriter

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    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).
     
  3. Steve Ridges

    Steve Ridges Stunt Coordinator

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    So when they say California is 38 billion in debt, does that mean for this year?
     
  4. LewB

    LewB Screenwriter

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    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 ? [​IMG] [​IMG]
     
  5. Todd Hochard

    Todd Hochard Cinematographer

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  6. Bob Graz

    Bob Graz Supporting Actor

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    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.
     
  7. Steve Ridges

    Steve Ridges Stunt Coordinator

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    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?
     
  8. Seth--L

    Seth--L Screenwriter

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    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).
     
  9. Philip Hamm

    Philip Hamm Lead Actor

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    Also, most states' tax income is determined by federal tax rates. So when the federal government lowers taxes, the states involuntarily do as well.
     
  10. Tommy Ceez

    Tommy Ceez Second Unit

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    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
     
  11. Malcolm R

    Malcolm R Executive Producer

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    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.
     
  12. Lew Crippen

    Lew Crippen Executive Producer

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  13. D. Scott MacDonald

    D. Scott MacDonald Supporting Actor

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    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 [​IMG]).

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

    Julian Reville Screenwriter

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  15. Malcolm R

    Malcolm R Executive Producer

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    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.
     
  16. Eric_L

    Eric_L Screenwriter

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  17. Patrick_S

    Patrick_S Producer
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  18. Eric_L

    Eric_L Screenwriter

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    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.
     
  19. Seth--L

    Seth--L Screenwriter

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    The President has quite a bit of influence and pull over the budget.
     
  20. Michael Reuben

    Michael Reuben Studio Mogul

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