California Special Election ballot measures 1A through 1E were soundly defeated yesterday by an average margin of 65% no to 35% yes with Proposition 1F (elected officials salary freeze) the only measure to pass (74% in favor, 26% against).
We will note tighter results (except with respect to Proposition 1F) in San Francisco County where just 21% of registered voters visited the polls and Proposition 1B (school funding) received yes votes from 52% of those visiting (i.e., not including absentee).
∙ California Special Election Results (5/19/09) [ca.gov]
∙ San Francisco County Special Election Results (5/19/09) [SFGov]
Why not file for bankruptcy? California could save billions by defaulting on its bonds.
States can’t file for bankruptcy. As a sovereign entity, California could simply default, but I doubt Washington would be too keen on that.
I gotta admit, that was a fun/pathetic vote. (and it went my way too:) Those measures were so deceitful and sleazy, it was a rare time when the kooky-left Bay Guardian and the more monied actually agreed on something in this town! Maybe 40 people showed up to vote at our polling station. So my wife and I represented 5% of the local resident vote. Brilliant elections CA…I had Bob Dylan’s idiot wind on repeat on my iPod for that.
It would have been perfect if 1F also applied to SF board of stupidvisers. That would have been sweeeeettt!
I wonder if we’ll get a repeat of FORD TO CITY: DROP DEAD.
California is really in a pickle. Refuses to lower services/spending. Refuses to raise taxes to pay for them.
something clearly will have to give at some point. The borrow and spend culture can only go on so long when you are just a state. I’d imagine that those borrowing rates might rise as more and more lenders recognize that California is a huge default risk.
by the way: any entity can default. you don’t have to be sovereign to do that.
I’m not sure I’d call California a sovereign entity, unless you use a very liberal definition of the word. (like saying it’s a sovereign entity that falls under the purview of the federal govt which is truly sovereign)
My guess is that the same old, same old will happen. California officials will start cutting the most needed and painful positions first, leaving the pork. Cut teachers, firefighters, police, roads and leave arts budgets and subways to Chinatown. then the people will squeal and you can float another bond measure.
California is really in a pickle…. something clearly will have to give at some point.
At some point, I agree. But for now, I think they’ll just call 1-800-OBAMA. Children have no problem asking their parents for help – my 5 year old asks me all the time.
“any entity can default. you don’t have to be sovereign to do that.”
It gets far more complicated when the defaulting entity is a state. If any ol’ entity defaults on a debt — a person or a company — the creditors can sue, get a judgment, and then levy against the debtor’s assets to collect that judgment. Bankruptcy is an option, but the debtor still loses essentially all its assets (but bankruptcy caps the losses at the level of assets).
But one cannot simply sue a defaulting state for a debt because of its status as a sovereign. The 11th Amendment prohibits any such suit in federal court (very complicated doctrine with lots of twists, but that’s essentially the rule). This leaves you with a suit against the defaulting state in the state’s own courts. But the state can simply pass a law, which the state courts will uphold, depriving a party of any relief against the state in state court.
As far as I know, no state has defaulted on its debts in modern times (I believe in the 1840s there were some), so these principles have really not been tested. But the consensus is that California could “walk away” from its debts — period. Of course, that would mean an end to any further bond offerings as nobody would ever again invest in the state (at least for decades).
ex-SF-er – sure, any entity can default, but only bankruptcy and sovereign immunity can protect an entity from creditors. Whether or not California would have sovereign immunity is something that I can’t answer, but I’ve heard it tossed around as a possibility.
Regardless, California’s credit rating and potential for future borrowing would be destroyed, so it’s unlikely that the feds wouldn’t (or won’t) step in before it comes to that.
actually, this vote was incredibly rational.
the federal governement will bail out CA if needed – no ifs ands or buts. (many reasons, but first and foremost, electoral votes, second, mass muni market chaos if CA defaulted (or even came close)).
so, as a rational voter, faced with the option of voting for higher taxes, why vote yes when you can simply play the brinksmanship game, then get the Treasury to open up its coffers to float the difference? CA is not in any kind of pickle – I would argue this was one of the rare rational actions by the CA electorate in quite some time.
I’m looking forward to my slice of government cheese.
^^^Trip beat me to it (and clearly is much more knowledgeable on the subject ;))
Look at the Vallejo saga – 7 managers in 4 years and you have to pay these guys $390K to go home and do nothing (after paying them $344K per year to do nothing about fixing the city’s budget and union contract problems). Who does the hiring there, George Steinbrenner or Jerry Jones? Vallejo is emblematic of the whole state.
I agree with 45yo hipster – it’s too bad 1F didn’t apply to the city, but that day will come.
I am continually amazed that in what we are told is one of the wealthiest states in the country (and the 8th largest economy in the world) isn’t able, under any circumstances, to balance its budget — even when times are good, they lose money and when things go bad, forget it!
And this is in a place with the second-highest state income tax, highest sales taxes and generally speaking, most expensive everything in the nation. And let’s not forget: second-worst schools and overburdened infrastructure.
All I’ve got to ask is: How did Californians screw it up so bad?
Jimmy – two words – direct democracy.
Jimmy (No Longer Bitter), two words: Prop 13.
good points Trip/Brutus and all.
California being a state definitely holds some advantages if it were to default. but I also agree with others that it would be eons until they’d ever be able to float another bond again. and California lives off its bonds!
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polip/LMRiM: I agree, California will just go to the Feds. This will be one of many shoes to drop with bailout nation. the problem: is there enough money to go around???? It’s not like California is alone, most every state wants its gubMINTcheez. other states will be quick to jump on the fact that California’s budget is a mess especially compared to other States. That said: This is where having Feinstein will help. Well played.
but Fed bailout isn’t a panacea. their forward expenses are greater than their forward revenue. a bailout doesn’t lower their expenses.
overall: California will get its bailout, but not because it’s so important in and of itself. It’s more because a California default immediately closes the bond market to almost all other municipalities.
I’m not sure where the funds are going to come from. Our friends at the Treasury/Fed have already spent that money on the BANKS. it costs money to zombify your banking system and pay your cronies.
combine the money already spent on the banks with the constant diarrhea of Treasury offerings slated for the next few years and the fact that many other sovereign nations will go to the bond markets and mix in the fact that the petronations and dollar recyclers are hurting, and you get a very nasty lemonade. I’ve said this before but we risk a bond market crash.
Jimmy – 4 words: out of control spending.
FSBO – isn’t that simply a product of the intiative system? Has there ever been a proposition that has decreased spending? Many that have increased spending. Many that have “guaranteed” a level of spending. Many that have decreased revenue. 1+1+1 can’t equal 2.
Ok, so everyone in CA can vote to spend everyone else’s money on some pet project like HSR, and spending and borrowing go through the roof … meanwhile basic services suffer? Is that the idea?
If that’s the case, then I’d say not only should the state go bankrupt, but services that impact ordinary citizens should be cut/eliminated so that regular folks start to really feel pain as a result of their bad decisions.
That’ll teach people not to vote to spend everyone else’s money.
There’s a good article in this weeks Economist about CA “the ungovernable state” that folks should check out. It does a nice job of summarizing what’s wrong and discusses potential future reforms including a wholecloth re-write of the states constitution. Off the top of my head, it mentions:
1. Only a couple of other states require 2/3 leg. vote to pass a budget
2. Only 20 or so states require 2/3 leg vote to raise taxes
3. No other state but CA requires 1 and 2 above
4. 20 or so other states have put Propositions on the ballot for voters, but they (all?) have sunsetting provisions and/or can be over-ruled by the legislature
5. And probably most importantly, in the last several decades CA districts have been gerrymandered in such a way that they virtually guarantee a legislature dominated by far-left Berkely liberals or far-right Central Valley conservatives, and beholden to their extremist supporters, have no reason to broker rational compromises.
Really a very good article the more I think about it – check it out here: http://www.economist.com/world/unitedstates/displayStory.cfm?story_id=13649050&source=most_commented
^ bullsh*t on prop 13! I’ll repeats the 2 operative words: direct democracy. It can’t work when 90% of 40 million are a bunch of lazy idiots. Of course this is known apriori, hence we get brilliant ballot measures.
And polip is 100% spot on- although it may be counter intuitive, mix direct democracy with obfuscated and sleazy measures and you simply kick the ball further down the field. Worlds 8th largest economy defaulting? It ain’t gonna happen folks. Think Obama-Nancy-Diane Fed trilogy. I suggest everyone upgrade their summer grills, cause at this rate there gonna be a whole lotta Fed pork coming our way.
^ bullsh*t on prop 13! I’ll repeats the 2 operative words: direct democracy. It can’t work when 90% of 40 million are a bunch of lazy idiots. Of course this is known apriori, hence we get brilliant ballot measures.
And polip is 100% spot on- although it may be counter intuitive, mix direct democracy with obfuscated and sleazy measures and you simply kick the ball further down the field. Worlds 8th largest economy defaulting? It ain’t gonna happen folks. Think Obama-Nancy-Diane Fed trilogy. I suggest everyone upgrade their summer grills, cause at this rate there gonna be a whole lotta Fed pork coming our way.
5. And probably most importantly, in the last several decades CA districts have been gerrymandered in such a way that they virtually guarantee a legislature dominated by far-left Berkely liberals or far-right Central Valley conservatives, and beholden to their extremist supporters, have no reason to broker rational compromises.
And not “or.” The (yes, gerrymander beholden) lefties have the majority, but the 2/3 rules prevent them from getting JACK done because the Central Valley/ OC conservatives are beholden to their (yes, gerrymandered) constituents. As you said.
It’s a great article. The case for a California Constitutional re-draft is a strong one.
A columnist over at the Atlantic thinks we should just let CA default.
I feel like I am in a conflicted position- the Californian in me wants the Fed to step in, whereas the American in me wants to prevent the Fed from stepping in anywhere else, since it has already overstepped.
If any help is given to us by the federal government, it should come with a number of quite severe conditions.
I believe we should repeal prop 13, redraft the constitution, stop giving services to illegal immigrants, and slash the budget by a third, perhaps by half.
Please. State spending has gone up way more than inflation + population growth over the past 10 years.
If it had gone up with only inflation + population growth, California would have a SURPLUS.
Now ask yourself, are gov’t services THAT much better the past 10 years? Is crime down 50%? That much less fire damage? Are schools 50% better? Um, no. So if that’s the gov’t we’re paying for, why aren’t we getting it? And if we’re not getting it, WHY ARE WE PAYING FOR IT.
F the gov’t. Cut cut cut.
For Pete’s sake, Prop 13 is NOT the cause of all this BS. California has the 4th highest overall tax burden in the country, and the only reason we’re not #1 is because our average property tax burden is 26th–right in the middle, it’s not even relatively LOW.
Stop whining about prop 13 and address the true issue–the UNSUSTAINABLE growth of gov’t spending beyond population growth + inflation. If gov’t spending grows beyond that, it just keeps on taking a bigger and bigger share of your money. Again, it’d be one thing if it were providing better services, but I ask you again, are schools better? health care? public safety? No no no.
The state gov’t has to go to rehab and it says no no no.
PS. Local gov’ts here are just as bad. Again, spending by a few I’ve checked (SF, Oakland, even San Leandro) have doubled over the past 10 years, and what do you have to show for it? Crappy schools, same crime, etc.
Why is California in the shape it is? Top 3 reasons.
3. Dumb people make up most of the population.
2. Anyone spending someone else’s money is not going to be as careful with it as with their own.
1. Public sector unions, as powerful as the biggest state in the Union by population.
That’s really all you need to know imo. This whole thing about the “people want services” and “the people pass the initiatives” is nonsense. The sheeple are steered into voting for what the elite interests want. How much $$ did the teacher’s union spend back in ’88 on prop 98? How much this time? Stem cell spending when the private companies were unwillingto fund it? Who really benefits from the 3 strikes law? Who wants nonviolent drug offenders clogging up the prison system, while worthless dregs of society sit on death row at huge cost waiting for the “mercy seat”? (http://www.youtube.com/watch?v=n8CzFVm1Yio)
Follow the money.
Anonn- And btw, SF politics are a microcosm of that, except of course the liberal vote here rules. But, whatever crazy measures SF residents manages to approve, they still come up against (quite frequently I might add) state, fed and even constitutional violations. Hence we spend more tax payer money taking many of these stupid measures up the court state-to-fed hierarchy, only to have them over turned.
The end result is a brutally bifurcated society, with rampant distortions and heavy handed socialist policies to help ‘the poor’. So the wealthy find numerous loopholes and rely on constitutional rights- I promise you the constitutionally protected “takings” provision will have it’s day in court in Cali in the next several years. And the poor learn to continue to milk the system to their benefit. And those bemefits are extensive, i.e. CA mandates that utility companies like PG&E offer reduced rates to those with low incomes. What a tangled web we weave/this is going to get interesting.
Out of control spending? Much of the overspending is caused by an accumulation of directives from voters, so the real problem is actually the reverse.
And why is the idea of defaulting even coming up? California’s debt payments remain a tiny fraction of what is spent on services, especially prisons and educations.
It is revealing that the conservative leaning folks who insisted that we could afford to keep a huge fraction of the working age population in prison without are complaining about mysterious cost increases and blaming financing. We did this to ourselves, and our gold plated prison system will probably have to be the first thing we dump.
LMRiM – I agree 100%. And when I say that direct democracy is the problem, I’m not saying that allowing the “people” to legislate is the problem – I’m saying that direct democracy (in a place like California, under the structure that is set up here) is actually more easily influenced by special interests and a select few than representative democracy would be.
I have said it time and time again since moving here, “California is like a gorgeous shiny new Cadillac that when you look under the hood, the motor is missing. When it comes to government, I will take the spiffy, working new Civic Sedan I moved from on the east coast. But, gosh, darn, the Caddy, it is just so darn pretty to look at, isn’t it?”
PS- And, the crazy part is the Spiffy Civic Sedan of a state I came from is run by the mob! They did a far better job with the government!
It’s revealing that liberal-leaning folks don’t see any growth in the gov’t except the prisons as a problem.
Do you liberal-leaning folks (Mole Man) deliberately go out and spend more money on the same service every day? Let’s say there are two gas stations on the corner. Do you go to the one selling $3 gas or the one selling $2.25 gas? Because we’re spending twice as much on the gov’t as we did 10 years ago, or about 30-40% more adjusted for inflation & population growth, and I really don’t think we’re getting any better services. Crime? Schools? What’s been improved by that massive increase in spending?
So all I can conclude is that you, liberal man, love spending $3/gallon on gas, when $2.25 is available across the street. Must be a product of the CA public schools.
Why not outsource our prisons to India? They would be a lot cheaper to run then.
This state is doomed. Maybe we should split the state into Northern and Southern CA, then start over with new constitutions for each new state…
The state is not doomed. This is just the moment when economic realities finally give reckless spenders a sharp smack upside the head. Over 30 years of insane state spending are going to come to a screeching halt right.about.now.
When you make a mistake, you have to learn from it and not repeat the same mistake in order to make progress. The voters in this state consistently elect representatives to go to Sacramento to repeat the same mistakes over and over again.
When Arnold Schwarzenegger was elected, he said that he was going to put a stop to the borrowing, that he was going to “cut up the legislature’s credit cards”, that he was going to eliminate wasteful spending.
And where are we now? He supports a ballot measure to borrow against revenues from the State lottery! After three budgets in a row that have increased state borrowing.
Just like Arnold found out the hard way that it wasn’t that easy, Meg Whitman or Tom Campbell or Steve Poizner are also going to find out, after the election, that it isn’t that easy.
Just want to set myself up to be able to say “I told you so” after the next gubernatorial election.
Insane spending isn’t something new in California for the last 30 years. We had insane spending for decades before that – only it was on things that generally pay off with future returns (schools of all types, infrastructure – water, freeways, bridges, etc). Over the last thirty years we’ve starved spending on those good things (as a percentage of state GDP) and increased spending dramatically on things that never pay dividends (or pay much lower dividends).
Dear ex-SFer – States are sovereign entities. It is the basic decider of law and provider of safety. The federal government is a limited (but superior) sovereign. Cities are not sovereign; a state may abolish them if it chooses. Obviously, in practice, Americans have drifted so far from the founding theories that people (reasonably) aren’t aware of this.
I don’t think it’s doomed either. But it just might be too large to be governable with any semblance of efficiency.
I actually foresee similar patterns in CA and the US generally emerging as the next decade unfolds. I expect the underground economy to explode everywhere, and it’s going to be a mad scramble to preserve assets and thrive in the face of an assault by the overwhelmingly inefficient political failure machine. It’s probably going to look like Italy in the 1980s, lol. Good environment for ruthless traders… I hope.
“For Pete’s sake, Prop 13 is NOT the cause of all this BS. California has the 4th highest overall tax burden in the country, and the only reason we’re not #1 is because our average property tax burden is 26th–right in the middle, it’s not even relatively LOW.”
This is wildly misleading. The key word here is “average”. We all pay 1.13%, but the HUGE difference is in the assessments.
My neighbor across the street who just passed away had a property tax burden of $324/year or $27/month on a home that is worth $900k at the median price per square foot.
Please tell me what state has a lower tax burden than that?
Please tell me what state has a lower tax burden than that?
Interesting example. You complain about the use of the word “average,” but then cite your neighbor. Because your recently deceased neighbor’s house is probably going to be sold and it’s going to generate 50X that before too long. Yeah, we all pay 1.13%. But the California home buyers of the past 10 years or so pay an outsize burden to the state. Funny how all that boom time revenue coincides with the state’s decline, isn’t it? You’d think the opposite would be true. But heck no.
I’m a little surprised to hear so much support for 1F on here. I’m not fond of politicians either, but doesn’t paying them better mean they are more independent of lobbyists etc.?
Is there any other state where owners of commercial property pay essentially nothing in property taxes?
The real Prop 13 problem is this scam: commercial properties never get ‘transfered,’ because what gets transfered is corporate ownership. So their property taxes never increase.
The residential property aspect is unfair and ridiculous, basically existing CA residents voting to enrich themselves at the expense of new immigrants, but it’s always been a distraction from the primary aim of Prop 13, which was to let business interests off scot-free.
anonn — The neighbor was paying something like 0.036% of his house’s market value, while the new buyer will presumably pay the full 1.13%. The average property tax bill is nowhere close to 1.13% of market value of the real estate in this state.
In the end, the state MUST go bankrupt — there is no other way to break the impasse in Sacramento than a complete and total destruction of the current system. Don’t expect them to go quietly.
“The average property tax bill is nowhere close to 1.13% of market value of the real estate in this state.”
Jimmy, I guess I’m saying the same thing except in a different way. There’s average, and then there’s average. Missionite’s block’s average is about to get goosed. But again, funny how the influx of property tax revenue over the past 10 years coincides with the state’s decline.
Not really; the other option is a state constitutional convention so we could ditch the 2/3rds requirement to pass and budget be like almost every other state.
I have no problem with locking property tax at 1%. All I ask is that all property, commercial or residential, is assessed in the same way.
Because your recently deceased neighbor’s house is probably going to be sold and it’s going to generate 50X that before too long.
Or the heir who inherits it will rent it out and keep the same tax basis as the prior owner.
I own a house, bought last year, and the best thing about Prop 13 is that I know what my property taxes will be 10 years from now if I don’t move (and I don’t intend to). Other places, well, my taxes went up one year by 20%, down the next by 5%, up again the following year, it was painful to try to budget.
And there are plenty of places around the country where R.E. is just as expensive (say, nice ‘hoods in Chicago), but you pay 1.5, 2, 3% in prop taxes.
Prop 13 is a red herring. It’s spending, not taxes that are the problem.
Just to reiterate my point:
http://www.taxfoundation.org/research/topic/15.html
In 2009, California taxpayers had to work until April 20 to pay their total tax bill (ranked 4th highest nationally), 7 days later than national Tax Freedom Day (April 13). The Tax Freedom Days of neighboring states were: Oregon, April 9 (ranked 26th nationally); Nevada, April 8 (ranked 29th nationally); and Arizona, April 10 (ranked 23rd nationally).
Are services here materially worse than Arizona? Nevada? Oregon (where half of Californians seem to move to every year)?
Estimated at 10.5% of income, California’s state/local tax burden percentage stands at 6th highest nationally, above the national average of 9.7%. Californians pay $5,028 per capita in state and local taxes.
Again, do you think our state and your locality is the 6th best run in the country? That’s the gov’t we’re paying for, why aren’t we getting it?
First thing we do, let’s kill the entrepreneurs:
In 2006, California’s individual income tax collections were $1,418 per person, which ranked 6th highest nationally. Since most small businesses are S Corporations, partnerships, or sole proprietorships, they pay their business taxes at the rates for individuals.
Oh, then let’s repeal Prop 13 for businesses and see what happens when you combine that and this:
California, as the state’s 8.84% flat rate is the highest corporate tax rate in the West. Nationally, only eight states have a higher top corporate tax rate than California. In 2007, state-level corporate tax collections (excluding local taxes) in California were $307 per capita, which ranked 6th highest nationally.
Prop 13:
That brought its combined state/local property taxes to $1,030.60 per capita, ranked 28th highest nationally.
Or the heir who inherits it will rent it out and keep the same tax basis as the prior owner.
That’s my situation. My landlord pays $1K/year tax on a house in Tiburon, while the recent suckers are paying $15K+/yr for the same place. Hey, someone’s gotta pay for these great schools, and I’m glad it’s not me!
Speaking of keeping old grannie in her home, I’ve got a good friend up here who rents a place in East Corte Madera (Tiburon school district). It’s pretty modest but nicely updated 3/2 – well uner $3k/mo. The elderly owners live in Oregon, and rent from the house + social security and medicare welfare is funding their lifestyle. Again, the recent purchasers of these modest places – who typically only have a fraction of my friend’s net worth – are funding his kids’ education, freeing up his funds for better uses.
Among all the railing about the “unfairness” of prop 13, let’s recognize that it creates some wonderful distortions that are tradable/exploitable. In a super distorted game, you just need to adapt yourself to the playing field.
“Freedom is not procured by a full enjoyment of what is desired, but by controlling the desire.” – Epictetus
Eric:
as I said in my post above, some people use a more liberal version of the word “sovereign” than I do. You are likely one of them. and thus our differences are likely semantic only.
cities and counties can also be the basic deciders of law and providers of safety as well, but are they sovereign? no, because they must submit to their states. in the same way, the federal govt can and often does trump the State even when it has no Constitutional right to do so in theory. (such as speed limits, legalized marijuana, etc).
I use a more strict sense of the word sovereign, which includes the idea that it is autonomous from the control of outside forces. The US is sovereign. the UK is sovereign. California is not. The Kurdish region of Iraq is not.
I did not mean to turn this argument into a semantics argument about sovereignty. Instead, I was just clarifying that Brutus wasn’t arguing that California was truly a sovereign entity. (as example, some Texans argue that Texas is an autonomous Republic that can leave the union at will, and some are even calling for it! Even Gov. Perry seems to feel that Texas is ‘unique’ in this way)
clearly neither Texas nor California are the sovereign ruling entity. I’d like to see them try to secede, or to declare war on another entity
the US of old is no more, where there were a grouping of united but sovereign states.
but again, if you use a more liberal version, then one could EASILY call California a sovereign entity.
Not true. As a percentage of all personal income, based on 2006 data, California’s tax and fees place taxpayers in this state 18th in the country.
lookit everyone gettin’ all doomsday-y
it won’t be that hard to balance the budget
a 15% cut to education, health & human services, and criminal justice and maybe $5 billion from the feds — done.
that 15% is recent growth so nobody should feel too entitled to that money (oh sure, you’ll hear a hue and cry, but just ignore it)
The differences in methodology:
http://www.taxfoundation.org/publications/show/22320.html
I propose something even easier. Furlough a rotating 1/12 of state workers, starting with any “administrator.” The ones we can live without, likely nearly all, we fire permanently.
anonn,
Good point on why the property tax increase in inflows coincides with the current fiscal.
Everyone binged on easy money/debt: private and public sector. And everyone got greedy and lazy: flipping/speculating instead of producing something of value, or raising their incomes to the sky without accountability or extra benefit for anyone but themselves. The easy money kept coming, therefore they thought they were probably doing something right, whatever it was…
Now the fictitious money is going poof and everyone’s crying at every level (okay, not everyone…). Hi-level public self-servants are clinging to their 20% a year raises compounded year after year after year. Sure they might go to the private sector if their salaries are lowered, but you know what? Let them do that! The private sector will ask them results and accountability. Something they have no clue about. They’ll come back running…
Sure they might go to the private sector if their salaries are lowered, but you know what? Let them do that! The private sector will ask them results and accountability. Something they have no clue about. They’ll come back running…
For some reason I’m reminded of this.
David — state worker salaries are, I believe, about 3.5% of the General Fund budget
you could fire them all and not even be close to a budget solution
CA spends $24-Billion in Salary and Wages excluding staff benefits for 2009-10…
Personnel Years and Salary Cost Estimates (Revised)
Doom and gloom indeed. Rubicon, I can’t say anything about salaries but from the budget page I got the following general fund summary for FY 2009-2010:
Prisons 7.3%
k-12 edu 30.2%
higher edu 9.7%
“labor and workforce development” (?) .3%
“general government” (?slushyfund?) 4.3%
legislative, judicial 4.7%
state and consumer services 1.1%
biz, transport, housing 8.9%
resources (?) 4.2%
enviro protection 1.1%
health and human services 28.2%
For those interested, here’s a link: http://www.ebudget.ca.gov/pdf/BudgetSummary/SummaryCharts.pdf
I’d vote for keeping the productive parts (education, higher eduction, transport, etc.) going and cutting back severely on the unproductive parts (prisons, health and human services which probably includes a whole lot of welfare etc.). The Feds will take over healthcare with Obama’s new plan anyway (and probably do it better).
Sorry, the Tax Foundation don’t really cut the mustard with me as far as being a good source.
http://tinyurl.com/ow9myx
This is from the Public Policy Institute and jibes much more with what seems to be reasonable to me. Our overall tax burden is higher than average, but as a percentage of income is 19th, or about average. Taxes dropped a bunch after Prop 13 was passed, but have inched up a bit since then.
I have been all over the country and I think that California public services are a little above average, mostly in the area of post-secondary education. We also have a very large and well-funded prison system, mostly to our detriment. But that is what the voters wanted.
I guess part of the disconnect is not distinguishing between general fund spending and total spending. The total spending includes special funds and fed. funds.
Unearthly’s chart includes special fund spending and fed fund spending — which is part of CA’s total budget but not part of the General Fund
Also, most welfare-type spending (Cal-works, child welfare, General Assistance, mental health, substance abuse health, etc.) is with federal and local money — less than 50% of the spending is with state funds
in other words, you either have to either greatly reduce education spending — which is half of all General Fund spending — or raise tax revenues. (or a mix, or other ways of course, I’m just making a point here)
one or the other, take your pick — you can’t have your cake and eat it too
Jake,
Don’t believe the propaganda (encouraged by the teacher’s unions) that K-12 education in California is only 30% of the budget. While technically correct in that the spending is 30% of the General Fund, it is just about 50% of overall state spending! The big discrepancy is that the budget overlooks the almost $14B that is spent out of property tax revenue, which is outside the General Fund.
They are as slippery as snakes (e.g., just how many teachers are being paid? how many administrators? It’s probably more than 500,000 workers on the state payroll in k-12 education, but good luck finding accurate info!)
To see overall CA spending (approx $145B) look at figure 1 under Chapter 1, “Key Features of the 2008-09 Budget” here:
http://www.lao.ca.gov/2008/spend_plan/spending_plan_08-09.aspx#k12
To see K-12 spending and sources (approx $72B), see Figures 4 and 5 under Chapter 3, “Expenditure Highlights” in that same link.
Let’s have a discussion about how to make education better and more efficient, but let’s not lose sight of the need to cut cuT CUT!
And cut cut cut the prison guards’ extortionate union as well. If we need to, let’s outsource some prisons to Nevada and Arizona – the states and private companies there will be happy to get some checks from the CA taxpayer, and perhaps the recipients of the public monies won’t have the same stranglehold over the craven CA legislators as the public unions do now.
Despite the many different views expressed on this topic, it seems that we all agree that the prison system (and its costs) are out of control. We should start there. How about letting all non-violent offenders buy their way out of prison – say, $100K per year of remaining sentence. Let them finance it with interest and withholding. Send the Mexican nationals back to Mexico (where of course they will cause us no further problems). Then eliminate a bunch of overpaid positions. With all the space made available we could offer to house the Quantanamo prisoners and charge a huge premium to the federal govt. I also think that CA should offer to become the nuclear waste site instead of Yucca Mountain – let’s just set the price high. We could bury the waste under the foreclosed neighborhoods in Victorville that the banks are bulldozing. What’s greater – the half life of spent uranium or the years to go until the housing bubble reinflates? I think there’s a prison down there too that could be emptied.
Rubicon:
I am all for education spending BUT you have to question where the money is going when we STILL rank in the bottom in the nation.
Truthfully, CA public education lacks any real oversight. Nobody is really paying close attention to what is really going on in the public schools–there is no true state monitoring system where books and lesson plans are audited.
So, it is money wasted..
I’m with LRMIM, let’s call 1-800-OBAMA!!
CA is sure more deserving of a bailout than GM is.
Higher education?
http://www.aftface.org/index.php?option=content&task=view&id=530
# The number of noninstructional staff grew by 24 percent from 1997-2007, with the most significant growth in the category of professional staff, which increased by 50 percent.
# The number of administrators, the majority of whom were full time, also increased by a substantial percentage.
I’m sure it’s the same in K-12.
Plenty of fat to cut on the bureaucracy side. never mind all the BS commissions that amount to a couple billion (hey pretty soon it’s real money!) in general gov’t.
But again, it’s all secondary to the MAIN POINTS:
1) California’s spending SIGNIFICANTLY OUTPACED population growth + inflation over the past decade and
2) Services did not get measurably better. Again, 50% or so of the budget goes to education. Has it improved the past 10 years? public safety? etc etc? Not that I’ve seen.
So why are we paying all this money for the same or worse services? We’re all a bunch of suckers paying $3 for a gallon of gas when $2.25 gas is across the street.
Looking at the SFUSD API scores, it’s not until high school that things fall apart. The high school API numbers in SF are horrible outside of Lowell which is a test-in magnate in school.
SF is about 33% asian and 45% non-hispanic white while the public high schools are closer to 60% Asian and 10% non-hispanic white (Lowell is almost 70% Asian). My guess is lots of kids are probably going to private school if they don’t get into Lowell, skewing the stats towards students from lower income families.
Unearthly:
The CA state exams, which make up the API, do not even use the same framework as the National Assessment of Educational Proficiency (NAEP) that is used to rank states! It is a sham! The API is based on an exam aligned to a bunch of textbooks published by McGraw-Hill and friends. It is a SHAM!
CA still ranks at the bottom on the NAEP.
So this May 19 vote cost how many millions of dollars just to impose a salary cap on bureaucrats who can’t do their job?
David – spending in the last 15 years, adjusted for inflation and pop. growth, has increased 1.9% per year (LAO)
David – spending in the last 15 years, adjusted for inflation and pop. growth, has increased 1.9% per year (LAO)
And most of that spending has gone to expanding the prisons, which is what the voters wanted.
Did you vote for Three Strikes? If so look in the mirror, if you want someone to blame for the budget mess. Education spending as a proportion of the overall budget has actually gone down. The sad part is that there is no real leadership in Sacramento who is willing to tell the voters the truth: it is their own idiotic initiatives that have put the state into this bind.
Lowell is not the only good high school in San Francisco. Lincoln, Washington, Galileo and SOTA are all perfectly fine schools, above average even. And if your little darling isn’t smart enough to get into Lowell, then “above average” should be plenty enough. I know we all like to think that our children are geniuses, but we can’t all be right.
One thing that has been hurting California for a long time is that the federal budget is structured so that $40B or so a year of tax money funnels out of California, into a bunch of Red States:
http://www.taxfoundation.org/UserFiles/Image/Blog/ftsbs-large.jpg
This has been the case since the 80s and it has just gotten worse lately. Funny how when you take money from one region and give it to another, the former suffers.
I am guessing that this state of affairs will start to be reversed at least partially with the new regime. We shall see.
LOL, NVJ. It’s amazing how many “gifted” children there are in San Francisco!
Newsweek Magazine’s national ranking of “America’s Best High Schools” (2008) named four SFUSD High Schools among the top 5% in the country. Schools that ranked among the 1,200 were: Lowell, Washington, Mission and Balboa.
http://portal.sfusd.edu/template/default.cfm?page=about.didyouknow
wow, Mission and Balboa are in top 5%? i didn’t attend those two but 15 years ago they were perceived as sub-par.
This year, they must have changed their methodology or something, because only the four I listed made the list (minus SOTA).
http://tinyurl.com/q7ojzq
Mission has low API scores, but perhaps it got credit for having an economically disadvantaged student population.
That is the list from US News & World Report. The one mentioned on the SFUSD site is from Newsweek. Their web site makes it very difficult to actually view the list, unlike USN&WR.
http://www.newsweek.com/id/58432
I don’t think that CA is is much risk of default, by the way, in fact the last few months have been a once-in-a-decade opportunity to buy CA Munis. I watch them pretty closely, as I now have about 10% of my net worth tied up in various Muni bonds.
If you are really worried, you can diversify outside of GO (General Obligation) bonds and buy something more solid. I have some San Mateo School District bonds that I bought just over a month ago that are already up 10%. This is a huge move in a Muni and tells you that the bond market thinks that there is much less risk of a default. I think that a bunch of hedge funds had to dump their “good” assets to make redemptions, leading to some really good prices. These are zeros paying 6.5% tax free.
My Munis are my main hedge against the deflation scenario. I also own a smaller chunk of non-US sovereign debt and some high quality corporates in my IRA.
Anybody read Phil Ting’s editorial?
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/21/EDRA17O16A.DTL
“some high quality corporates in my IRA”
It definitely makes sense to put income producing assets into tax privileged IRAs, and I’d even have an overweight in junk debt there.
But just a perspective on long term planning, I’d be wary about having too much in IRAs, and I plan to slowly liquidate them whereever efficient (low income years when tax rate is lower, any available hardship withdrawals, “holidays” that are periodically proposed where people will be able to liquidate early w/o penalty, etc.). I won’t be contributing any more to them. (I religiously avoid having any “earned income” – I’d rather not pay the social security and medicare welfare ransoms, thank you – so it’s not really an issue for me lately anyway.)
I can easily foresee a number of negative attributes to having a pool of retirement savings identifiable by social security number. Could there ever be a forced “conversion” into government bonds a la Argentina? Means testing of your social security welfare check (which you supposedly “paid into” over all those years) tied to level of IRA assets? (a slam dunk imo) Differential pricing for college tuition or credit generally by a government that has seized most credit allocation decision? You go to the 100% government-controlled doctor, and they pull up your retirement assets to determine your “copay” amount on a procedure or the baseline insurance cost (of course, they’d graciously allow the tax free withdrawal of your retirement savings to cover the charges)?
Based on what I am seeing, I am expecting a very different future from what most people seem to expect, and I think it’s time to start considering how to hedge outlier scenarios.
The problem with putting junk bonds in an IRA is if they do default you lose the ability to write off the loss against your taxes.
I’m avoiding deferring any taxes into the future, since I believe taxes are only going to continue to go up, so its best to pay taxes now and invest in things that will not be subject to income tax when you liquidate/withdraw from it (like my HSA and a Roth IRA).
That’s right, Rillion, but I’d never recommend individual junk bonds for anyone with net worth under about $10M. Even then, it’s really not worth it imo trying to guess which ones will or won’t default and even at $10M+ good luck trying to find someone smart to advise you. Index exposure is fine, and the defaults just get subsumed within net performance.
I like HSAs, but again, the efficiency is questionable now. Under Obamacare, identifiable assets will have a cost, so you always need to factor that in. I am looking more deeply into these issues lately, and I’ll post if I discover any insights. For instance, it might be possible/efficient for some high net worth couples to split filing status, in order to qualify children for the free gooberment cheese SCHIP that is getting ramped up through the nonearning spouse. No sense paying for something yourself I always say if you can get someone else to pay for you 😉 As it gets more and more distorted, people will spend more and more time figuring out how to exploit the system rather than contributing to it. Welcome to the new reality.
“invest in things that will not be subject to income tax [later]”
Is everyone here sure they won’t tax those things someday? Of course, they will choose different terminology, in much the same way they are being clever about what they are doing now.
LMRiM — aren’t most domestic investments and assets (for us unwashed masses at least) tied to social security numbers though? I’ve often thought they’d just roll in an asset tax in the future, tied to a SS number. And look how aggressive the IRS is becoming about offshore assets, etc.
Thanks for everyone’s comments — they are very useful! For my part, I’m just focusing on growing my business — it seems that trying to navigate this right now is a lot like playing chess when their horsey can suddenly move like a rook (but yours can’t 🙂 ).
Rillion — how is it that your income is low enough that you can still contribute to a Roth IRA?
I make less then the “average” socketsite reader, so my income is below the $101,000 level that Roth IRA’s begin to phase out at, also even though I am married I have to file as single with the Fed so I get to use the $101,000 figure rather then combining my income with my spouse and using the $159,000 married figure.
I pay all of our housing related deductable expenses then itemize while my spouse takes the standard deduction. Another thing we could not do if we had to file as married. I’m actually going to see my taxes go up significantly if the Federal government ever repeals DOMA.
Ah. Got it.
I am actually planning on converting my whole IRA — which is the sum of my rollover 401ks from all previous jobs, and about 10% of my net worth — into a Roth IRA and taking the tax hit up front next year, when higher income people can finally do this.
I don’t know if this will really allow me to dodge the tax man, as they can always change the rules later, but I think it is my best bet.
If you are a really high net worth individual and that worried about taxes, why don’t you just leave and renounce citizenship LMRiM? It is going to just get harder and harder to dodge taxes.
“contribute to a Roth IRA?”
I considered an IRA -> Roth convo the first few years we started our business (low income), and I decided not to because I thought (even then) that the whole “tax free” thing was probably a sham.
I think that’s even more likely now — they could “means test” Roth distributions, for example, and stay within its spirit, thereby keeping 95% of everyone happy. And other advantages (if any, I’m rusty on the particulars nowadays) can be legislated away.
I know I’m going to get flamed, but unless you have (let’s say) mid-7 figures in assets, and you *really enjoy* doing it, your time is better spent growing your career or business, rather than micromanaging your assets.
That’s not to say you can’t “survive” piking your savings, and tax management always lurks like an ogre in the background, but you will do better finding something you enjoy instead, which I admit is pretty hard 🙂
Again, thanks to everyone for their comments — this is a great thread!
I doubt they will subject Roth IRA’s to tax in the future since the money going into them has already been taxed. The worst they can do is tax the “gain” inside the account but that would be a record keeping nightmare that the custodians are not set up to track.
Since the government loves to play accounting tricks with revenue estimates, I think the actual mechanic they would use in the future to raise revenue from Roth IRA’s is just to “freeze” them by not allowing anyone to create new ones or contribute to existing ones. Then they get to have some accountant estimate how much is contributed to them each year, figure out how much income that those contributions would earn each year, then say the tax on the earnings from the money that would have been contributed if Roth IRA’s will be X, and presto they can estimate X in new tax revenues and use it to offset some real spending.
Changing how Roth’s are treated would be an accounting nightmare, so they will just eliminate them rather then try to figure out a way to tax the income that has accrued inside them.
That’s not the way it would happen, Rillion. The gooberment would simply “freeze” all retirement accounts by instructing the custodians to stop honoring requests by beneficiaries. After what you’ve seen so far, do you have any doubt that the regulated custodians would not listen to the government?
Next step, “convert” all notional value of the accounts into gooberment securities having a defined payout structure (at low implied interest rates). This would be sold to the sheeple as “protecting” them from the vicissitudes of the “free market”. In exchange for these new IOUs the gooberment would take the former IRA assets and set up a new bureaucracy to “manage” them in conjunction with the current wall street fraudsters (sort of like Blackrock is making a small fortune managing the exchanged TALF, TSLF, etc. securities right now).
If you “need” the money faster than the payour schedule, submit an application and the goobermint will decide whether in fact you really do (in which case they’ll offer you discounted value) or whether it should simply float you a credit IOU that could then be passed to the IRS (or similar agency) for enforcement.
This scenario (or something like it) is not guaranteed, and probably not even likely; however, anyone who thinks that the USG would not do something like this when push comes to shove is a sucker. There is no way to pay for the entitlements that are coming, especially in conjunction with the massive credit deflation that must occur since aggregate debt is not repayable as a political matter. It’s going to turn into a free for all.
>This scenario (or something like it) is not guaranteed, and probably not even likely
And neither is using magic to solve all future problems, so I discounted that option as well.
The government can without enough effort do anything it wants, you can either plan for likely events are spend all your time coming up with worst case scenerios that are unlikely to transpire. For example you can think about it basically stealing everyone’s IRA and Roth IRA accounts, or you can think about it using the balances in those accounts in some sort of means testing to determine eligibility for the two big entitlement programs. Which is more likely? Not the one you seem scared of above.
I would think that if there were mass conversions to Roths then sooner or later thare would be anational sales tax on top of the income tax.
I expect it would be called something oxymoronic, yet vaguely patriotic like “The Liberty Tax” 🙂
Thanks NVJ for the 2010 reminder, I had forgotten about it (it seemed so far away!).
Does anyone have thoughts on IRA->Roth conversion in general, in this “new” environment, esp given the 2010 income exclusion?
I certainly think future tax brackets will be higher now than I did in the past when I made my original decision, and maybe this should offset my belief that the Roth itself will (in practial if not actual terms) be subverted.
My knee jerk reaction is to do nothing (which sometimes works quite well), and fry bigger fish.
Thanks again, great stuff!
I favor means-testing social security, or other mechanisms to reduce benefit payouts should they become unaffordable.
No one “pays into” social security or medicare — it’s a transfer, plain and simple: the working age population transfers some of its labor to retirees — this is the only possible form of retirement payout, or savings in general, under any form of government/economic system.
We should transfer to retirees only the amount received, no more and no less, say according to a 10 year moving average to smooth the business cycle. The mechanism of reducing benefits could be in the form of means-testing or lowering benefits for everyone — that’s a political decision.
Also, I don’t expect the government to seize non-cash assets — that idea is confusing stocks and flows. The government needs only to drain cash, not the discounted anticipation of future cash payments. Frankly, the latter is not of much use to the government. That’s why the government skims off of wages or transactions — and why you cannot pay taxes by sending your GE bonds to Washington. What would the government do with them? Sell them? To whom?
To the degree that there is a grab on your retirement, the grab will be in the form of higher taxes. I think a much greater risk to your IRA is that the economy fails to perform, and the assets fall in value or are defaulted upon.
of course, you’re right about most of that, Robert. You are addressing the tack that the thread has taken, but not as much my original point (now sort of lost – maybe I didn’t make it clear enough).
I’m not particularly worried about gooberment “seizing” IRAs. I only threw that out there as an outlier possibility in response to Rillion’s thoughts that trying to untangle the tax consequences of making Roth IRAs taxable would be unworkable.
That being said, I’m not sure I agree with all your points. A “forced conversion” (as I wrote) of IRA assets into low paying government IOUs would in effect be swapping claims on real assets and cash (IRAs consist mostly of cash, bonds and equities) for potentially worthless IOUs that could be inflated away. It might be politically preferable to the alternative of even more extortionate taxation rates.
Regarding the question of to whom the gooberment would sell the assets? Well, to the same people the retirees would have sold them, and perhaps a few others with whom the gooberment s in a special position to deal. Private investors, and the general stock market would be the first place to unload for cash (not all at once, but the gooberment IOUs don’t pay out all at once either). Corporate debt could be resold back to the issuing companies at a discount for cash. Equity in companies received in the forced IRA exchange could be aggregated and exchanged for chinese-held treasuries (in effect, forcing the “take out” of US sovereign debt to be absorbed by US IRA holders). Lots of possibilities!
All that being said, I think my original point regarding being careful to ascribe a cost to the accumulation of retirement assets that are identifiable by ss number was lost a bit. I am not overly worried about seizure. And in response to dub dub’s question regarding whether it makes sense to take the tax hit now on conversions to Roths, I generally don’t think it is a good idea even though I agree that future tax rates are very likely to be higher in the future for people who are in their 30s and 40s now. The cash that would otherwise be used to pay the tax today is better deployed elsewhere imo, although there are a number of variables and I don’t think you can really answer the question with any confidence. Future taxation differential is not my main concern either.
My point basic worry is not “seizure” or tax efficiency questions, but rather allocation of other gooberment goodies on the basis of your identifiable retirement assets. There is no question, for instance, that social security will selectively default by imposing a means test and by capping payouts while uncapping contributions above the current limits. I bet that the means test will be tied to retirement assets in IRAs, at least in part. So, in order to collect your government cheese, make sure you don’t have those assets visible!
SS is small potatoes, of course. The big kahuna will be differential pricing of medical care and long term care for you and your loved ones based on your identifiable assets. Again, no one knows the future of course, but I think you need to think a little about the sort of world we’re heading into and ascribe some potential cost to these possibilities in your long term planning.
As gooberment becomes more powerful in the allocation of resources, the cost of being one of the “haves” goes up, at least up until the point that you truly have so much that you receive special political dispensation as a class.
I do agree with dub dub that most people would be much better off growing their business (which can be an excellent store of wealth/resouces and the value of which is not quite as “identifiable” as a mark to market IRA statement or year end W-2) than worrying about all this, if their net worth is below mid-seven figures (at least).
It all depends. If you have, say, $1/2M in investable assets and you can bump up your overall return by 1% by spending 1 hour a week thinking about it, then you definitely should. What’s that, $100/hr?
Most people can probably gain an extra percent on their returns just by watching their costs on their funds and other investment costs.
Your best career move is to stop wasting so much time reading and posting to SocketSite and get back to work, slacker! We can always work harder, I guess, but you what they say about all work and no play…