Weighing A Strip Club Tax While Municipalities Hit the Wall

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com

While all eyes are on Europe, California is hobbling along its own path to, well, a tsunami of last-minute bills. In total, 665 bills are scheduled to be debated by policy committees from Monday through Thursday, the final days for 2012 legislation to get off the ground. California has some issues—its fiscal and economic policies haven't been a raging success recently. Hence, numerous crucial proposals in that pile of bills. For example, a strip club tax.

The bill (AB2441) is a response to the state’s perma-struggle with its budget deficit. To fix that problem once and for all, Assemblyman Das Williams (D-Santa Barbara) came up with a tax of $10 per customer at "sexually-oriented businesses" that serve alcohol (those that serve only soda are exempt), based on the theory, as he explained, that "there is a clear nexus between alcohol consumption and violence against women." But like so many taxes in California, it won’t reduce the budget deficit. Instead, the money would be channeled into a fund for treating victims of sexual assault. To pass, the bill would need a two-thirds supermajority, and Republicans will probably sink that baby.

So it goes in California. But things are getting complicated. In trying to trim its budget, the state has reduced funding programs for municipalities. Now they're teetering. They're already getting hit by rapidly declining property tax revenues, which lag the decline in real estate values by up to three years. In the Bay Area, according to data from DQNews, the median home value in March was $358,000, down 43% from the October 2007 peak of $631,000. In Contra Costa County, one of the tougher places for home owners in the Bay Area, the decline was 53.5%. Even if real estate values were to rise, property taxes based on assessed values would continue to fall due to the lag. And push is coming to shove.

Stockton, a hard-hit city in the Central Valley, is already contemplating bankruptcy. But instead of being able to seek Chapter 9 bankruptcy protection in federal court, it has been forced into mediation by a law Governor Jerry Brown signed last October, following the 2008 bankruptcy of Vallejo, just a ferry-ride from San Francisco. The law specifies that a troubled municipality will have to have its finances vivisected by a neutral evaluator, though it can still seek bankruptcy protection afterwards. A compromise. Unions, concerned that their members might lose some of their benefits in bankruptcy court, had pushed to give evaluators the power to prevent municipalities from seeking bankruptcy protection. To avoid this process, a municipality has to show that it would be insolvent in 60 days or that its fiscal emergency would “jeopardizes the health, safety, or well-being of the residents.”

"There’s a misconception on the part of the cities that they should have unfettered access to Chapter 9,” explained Assemblyman Bob Wieckowski (D-Fremont). Perhaps legislators had seen a slo-mo wave of municipal bankruptcies. Thus, Stockton is stuck in mediation purgatory, likely through June. If it is able to file for bankruptcy, which will give it an opportunity to negotiate away some of its debts in federal court, it will be the largest American city to do so.

Stockton’s litany of culprits range from free healthcare for retired city employees to revenue bonds on projects that don't produce enough revenues. But there is one item not on the list of culprits, the New York Times reported: underfunded pensions. To the tune of $30 million a year. Apparently due to pressure from Calpers (California Public Employees' Retirement System), the largest public pension fund in the US; it maintains that pensions are untouchable obligations under state law.

For Calpers, the prospect of a California city in Federal Bankruptcy Court portends a potential test of the constitutional mandate that federal law trumps state laws—in particular, the state laws that protect public workers’ pensions in California. Such a challenge could blow a hole in what experts consider the most airtight pension protections anywhere.

Stockton's predecessor, Orange County, went bankrupt in 1994, the largest municipal bankruptcy in US history. Alas, once again, Orange County is taking enormous financial risks to paper over its gapping budget deficit. This time, it quietly entered into $518 million of illiquid and unsecured interest rate wagers mostly financed from payroll and savings accounts of local schools and other government agencies—like the Titanic that ignored warnings and steamed full-speed into the night. Read.... Orange County’s Iceberg Dead Ahead.

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NuYawkFrankie's picture


CA officially updating its State Motto from -

The Land of Fruits & Nuts


The Land Of Fruits, Suits, Nuts & Sluts.

Catullus's picture

Pensions are untouchable...

Promises made to people, no matter how ridiculous, must be kept no matter what.

Raskolnikoff's picture

everything is negotiable. People are going to find out that the promises made to them can not possibly be kept, course the promisers could keep these promises but that act would be meaningless as inflation wipes out the meaning behind that empty promise. the same can be said of social security.  everyone gets ripped off here.

ebworthen's picture

Desperation, stupidity, cupidity.

TraderTimm's picture


"Snowcrash" was right. In the future, all the U.S. will be good at is pizza, entertainment and microcode.


Zero Govt's picture

Das Williams (D-Santa Barbara) came up with a tax of $10 per customer... he explained, that "there is a clear nexus between alcohol consumption and violence against women." 

the thieving (taxing) never stops

they'll think up (fabricate) any(pack of lies)thing to rob society

what next, taxing the air on account the Earth is going to fry from a trace element gas???

flight77's picture

Are the debts of California part of the 15 trillions of US debt, or are the state and comunity debts not included in that number?
There are all the IT and Internet Companies based in California, some of them the biggest in the world. How is the average tax rate for these companies, or don´t they pay taxes, because they produce in China and are paying their taxes overseas?

ebworthen's picture

State debts are separate; think of California as Germany being bankrupt versus Greece in a Euro-zone/US comparison.

Internet companies are fungible ether-space fudge shufflers; they don't really produce anything. Even if they are paying taxes you can't fill the Grand Canyon with a teaspoon and a pickup full of sand.

jack stephan's picture

Lawyer: Your Honor, my client has instructed me to remind the court how rich and important he is, and that he is not like other men.
Mr. Burns: I should be able to run over as many kids as I want!

Thunder_Downunder's picture

On the upside, there's all that junk from Japan which should be arriving on the Calif. coast any day now. 


Are we gonna see tens of thousands of 'slightly water damaged' tamagochis on ebay? Grab a bucket and a rake, the boom times are coming back....  



TBT or not TBT's picture

The war over biiig haircuts to CA public service unions is likely to be a bigger deal than a tiny change in background radiation levels.   Particularly as regards a finance oriented web site.

the grateful unemployed's picture

the problem started when gov brown cut off redevelopment funds. in the small city where i live they have considered moving the projects previously in redevelopment onto the main budget, though you can see how voters might not cotton to that, which is very much like the Orange Cty situation. and i would guess when voters get a whiff of it there will be trouble.

 the problem here was diminishing operating funds, and the cutoff of ambulance service, schools and street lights, while at the same time spending millions on highway expansion, and corporate enterprise zones. the joke is, what no school? just read the owners manual, and you can be a salesman at the new BMW dealership

(redevelopment and operating funds were firewalled)  cut the bone and spare the fat. anyway gov brown put an end to that. its so hard to make politicians do their job, which is take care of public works, education, police and fire protection, and let the corporations pay their own way. but if Ca can end corporate welfare then we all have a chance.



TBT or not TBT's picture

Oh good god, CA got this screwed up due to public sector union featherbedding.   It is that simple.

ebworthen's picture

A combination of both Corporate and Union featherbedding.

Greed, sloth, pride, lust, gluttony...etc.

The list really hasn't changed in millenia.

ReactionToClosedMinds's picture

This is good information.  Calif might be in a worse predicament than Ireland which has hope now after all the tough love medicine it accepted.

Why does everyone want to follow the Japanese zombie model?   Take the vicious haircut (see USA S&L crisis) , thank heavens you are still alive & healthy and get on with your life.

Amerika survived two very nasty recession/depression in late 19th Century and early 20th and came back gangbusters in part becasue of technological development.  Mellon and NMontagu solved the never ending idiotic dispute about German War reparations, WW1 disastrous inflation (which German Weimar Republic couold not address)  and got the western system back onto a solid currency footing etc. and Mellon got the more tax revenue out of the .5% population than anyone could ever have guessed (Mellon wanted to get rid of the municipal bond tax exemption which he thought was just a scandalous means of wealty tax avoidance)


ReactionToClosedMinds's picture

post-script:  no one remembers because Mellon was a political  target of FDR (complete bogus tax charges broguht against Mellon - complete gov't powers misuse)  .. but Mellon was very sceptical of the Federal Reserve System creation.  He did think there need to be a national regulaltory system/framework  but he viewed the Fed Reserve as built as a sop for NYC/Wall St interests over the rest of the country ... seems like he was correct in his assessment

Korbin Dallas's picture

I was really looking forward to an alcohol-free strip-club experience to save me from DWI tests on the way home, if it weren't for those meddling uncooperative representatives.

ebworthen's picture

Just wait, the politicians will make tit-and-ass free strip clubs mandatory and still expect the same revenue in taxes.

Then they will have to have a conference in Vegas for a week and go to a real strip club to form a committee and have discussions over Cosmopolitans with Grey Goose vodka to try and figure out why the tax revenues from the tit-and-ass and liquor free strip clubs are down.

"Perhaps we need better roads and infrastructure, and better broadband Internet access?" they will muse.

Then, they will return home to form a sub-committee to disseminate the results on a new website (in Spanish too) that they will have to hire twelve people to run and form a sub-agency of a sub-agency and put a line item in a farm bill to increase taxes to pay for it.

nmewn's picture

lol...if it gyrates, tax it. If it keeps gyrating, regulate it. If it slides down the pole upside down and bumps its head, subsidize it ;-)

krispkritter's picture

And then the only reason it will be called a 'strip club' is because you'll be stripped of every dime on your person just to walk in the door...

the grateful unemployed's picture

like the lap dance they have the lap drink, they hold the 12 yr old scotch up to your lips, but you can't taste it. sounds like fun to me.

cbxer55's picture

Absolutely. Never understood going to strip clubs anyhow. You go there and the chickies get you all horny, then you go home.



Zero Govt's picture

same as a disco then

whoever invented getting a hot chicks tits out for $10 and naked for $20-$60 deserves a Nobel Prize and a PhD in Business.. i'd put him above Einstein

lunaticfringe's picture

Wow. Let's just ignore the brontosaurus in the room and fiddle fuck around with strip club taxes. I am not the least bit surprised at any of this.

krispkritter's picture

They'll ignore the brontosaurus in the room until they can't.  Then the knives and forks will come out and it'll be "Where's the A1!" as they start eating their own tail, with no end in sight. Is Cali the next TBTF? It's a race to THE END in the US, it's just a question of who finishes(dinner?) first...

battle axe's picture

They tax the shit out my cigarettes, now they are going after my strip clubs, those bastards! Could that publicity whore, Meredith Whitney be  right? Maybe. 

TBT or not TBT's picture

Nor at Sacramento's laughable attempt to make haircuts on public sector workers' lavish pensions impossible.     Those are coming.  California isn't quite Greece but its bloated public sector is.   Their retarded politicians will make a mockery of this state.