The only sentence from this article you really need to read is, “Well, not solved it, exactly” — because when you “solve” a fiscal mess by taking on additional debt, you’ve solved exactly nothing. Obviously, one way to resolve a mismatch between revenues and expenditures is to borrow the money to make up the gap, but next year the gap just comes back with an additional bill for the interest. Repeat this process long enough, however, and people aren’t going to lend you any more money, and then you’re still faced with the choice between raising taxes and cutting spending.
So, the Gropenfuhrer [AL note: I’d really like to use this opportunity to publicly bitch-slap Steve “$300K” Lopez for this contemptuous construct, as well as his overall mediocre coverage of pretty much everything in local and CA politics. Dear Jon Carroll; I can think of three bloggers who could do a better job for a whole lot less money. Email me at the address above if you’d like some suggestions.] is claiming that borrowing by issuing a 15 billion dollar bond is somehow different than other kinds of borrowing. I’m sure the media will do its job and explain this to the moron-Americans of California (hah).
But, there is an ad campaign which will hopefully do what the news media won’t. You can watch it at this website. Treasurer Angelides is sponsoring it.
ANGELIDES: Well, here’s what I’m saying. What he told the voters is that he was going to balance the budget, protect education, health care for kids, and he was going to balance the budget while doing it. And all I’m saying, Judy, is he ought to try to do that first.
And merely borrowing more and more money and putting the state further and further into debt, and sending the bill to our children, is not what he promised and not the right thing to do. So come January 10, he’s required to have a balanced budget plan. We ought to see it. Btu he ought not be asking to borrow $15 billion plus without a plan on how to balance the budget. He doesn’t have one.
Damn, this pisses me off.
Personally, I don’t yet know if Ahnold will be a good governor or not; I do continue to think, from my conversations with friends in Sacramento, that the shock of his election was a good thing.
But this attack is pure and simple B.S.
Let’s go through it quickly, from three perspectives.
First, I really do wish that someone with business experience would talk about why borrowing by a troubled entity – whether a household, company, or state – can sometimes be necessary. Since that apparently hasn’t happened, I’ll nominate myself.
A big part of my business is dealing with troubled projects; some of them are actual companies, and some are troubled real-estate deals.
The first thing you do is to assure sufficient liquidity to see through the time necessary to come up with an orderly plan.
A company has bills due, and needs to keep operations going while you figure out how to fix it or close it in an orderly fashion (thereby retaining as much value for the creditors and stakeholders as possible). To do that, one of the first things you do to a cash flow projection, and to sit down with the banks to figure out where the cash will come from.
It is often at this point that you wind up filing Chapter 11, because only in a post-11 environment will new loans be forthcoming (they get priority over the old loans).
Similarly, California’s budget isn’t going to be changed in 45 days. And to bust Ahnold for not having a new, balanced, and politically palatable budget in 60 or even 120 days is unrealistic. The test is whether the budget process is moving closer to reality, and we won’t know that for at least a year.
Meanwhile, we have bills to pay, and the reality is that we’re going to have to go to the bank to get the cash to do so. I’m not even sure this is the last bond issue that we’ll require for this purpose (note that tax revenues are improving, but it remains touch-and-go).
Second, in the specific context of the California budget; Davis and the Legislature sold about $10B in general-revenue bonds as a way of shuffling off the spending crisis. Those bonds are being challenged in court, and it is not unlikely that they will be found to have been illegally issued. This bond issue will cover (I believe) those bonds (retroactively legalizing them by getting authority from the voters) plus the additional car-tax-cut deficit, plus a little something in the kitty as noted above.
Finally, Atrios neglects to note (he’s not from here, so it may just be lack of knowledge) that Phil Angelides is the leading D candidate for Governor in the next cycle, and that he’s overtly begun the campaign with this attack.
I thought that he would have been a good candidate to run in Part 2 of the recall (along with Leon Panetta), and probably would have voted for him. A disclaimer – I knew him pretty well when I worked in Sacramento a long time ago, didn’t think much of him then, but thought he’d grown substantially in his role as Treasurer. The posturing he’s doing now may cause me to rethink my support. He blessed the bond issue Davis & Co. did (although he was critical), and his fiscal solution relies, unsurprisingly, on raising the taxes on well-off Californians.
I’ve discussed earlier why that isn’t necessarily a good idea.