Letter from California

An archive of the weekly "Letter from Calfornia", written by Jim McCarthy.

Tuesday, March 09, 2004

Letter from California-March 8, 2004

Lately it’s been almost impossible to turn on a TV or radio without hearing it: now is the time to re-finance all that high-interest debt. Rates are so low, you’re crazy not to do it, they say, and for that reason, millions of people have been saying “Yes” to wiping away old debts and replacing them with shiny new ones.

I’m getting in on the action myself. In fact, I decided to borrow $15 billion just last week. That’s right. And the salesman was so friendly and charismatic; I really feel like he’ll be there to make sure the whole thing goes well. He was a nice guy with a sense of humor, quite tall, and he might have been an athlete once. What was his name again?

Oh, yeah. Schwarzenegger.

By now, I’m sure you’ve figured out that I’m not talking about refinancing the McCarthy Estate. California home prices are big, but even Woody Harrelson can’t find a mansion for his marijuana so big that it costs $15 billion. No, I’m talking about California Ballot Proposition 57, passed in early March by a wide margin of California voters. This proposition basically asked California voters if the state should borrow $15 billion by issuing a bunch of bonds and paying it back over time.

Now what in the world could California need with $15 billion? After all, that’s a lot of money. In fact, it’s three years worth of South Carolina’s entire state budget. $15 billion could buy everyone in the Golden State a really nice new color TV or one of those awesome Tivos. Or maybe we could put a down payment on our very own state Army, just in case Arizona or Nevada ever get any funny ideas.

No, sadly, that’s not where any of the money is going. Over the last few years, California just racked up huge debts, by spending more than it takes in, and the money’s going to pay all of that off in one go. It’s not as though California doesn’t bring in plenty of money, though. Sales tax runs at 8 ¼% and the top California State tax rate is almost 10%, and when you add it all up, it totals to about $100 billion per year. Throw in an economic downturn here and an energy crisis there, though, and pretty soon, you’re out of whack.

Schwarzenegger took office in the middle of all this of course. In fact, he campaigned hard on the idea that he was going to take action and that former Governor Gray Davis was a pitiful girly-man whose only plan was to raise your taxes even more. Davis replied that he was not a girly-man, and just to prove it, he didn’t plan to do anything at all about the budget problem.

I think most Californians supported the Proposition (and its twin, Proposition 58, which basically requires a balanced budget every year from now on) because it seemed like someone was at least trying to do something. Sometimes Gray Davis seemed a little like Obi Wan Kenobi playing Jedi mind tricks on the bad guys: “Your power isn’t really going off,” he would say calmly, “I haven’t really hired 40,000 new state employees in 3 years.”

But all this borrowing has gotten me thinking about all the things that governments have to pay money to do. It’s obvious that they do too many things, even though we all benefit from some of it. Sure, there’s the fire department and the police. Everyone likes those. It’s also nice that the state will build and maintain a road or two. Roads definitely come in handy, particularly when you own a car. Then of course, there are parks. People like parks. Dogs like parks. People like dogs, so you can’t cut out parks. Then there is healthcare and education, and who can say no to those? Then there are scholarships for college. All of this just sounds so good, people find it hard to argue them out of the budget. Keep going down this path and pretty soon you have a small army of people being paid to learn to be beekeepers or entire bureaus of the state government whose job is to make sure that the peaks of the state’s mountains are the same height as they were last week. When you look at things like those on their own, they look crazy, but when you get there a step at a time, most people have a hard time saying no.

So you can say that Prop 57 is the easy way out, just a bigger, badder credit card for a state with a spending problem. That’s probably true. We probably have to get used either to bigger tax bills or getting a lot less from the state. No one wants to pay more in taxes, so the only solution would be saying no to the fun programs that everyone loves.

Next time. We’ll start doing that next time.


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