Saber rattling about seceding from the Union for this reason or that (we are looking at you, Texas) has heretofore been a cheap political maneuver often motivated by the desire to shine the dim witted light of the mainstream media on some states' rights issue long since stripped away by the Supreme Court. This fact has permitted us to mostly ignore these sorts of pronouncements as casual. That might be a luxury of the past given the emergence of a new and severe phenomenon: crushing state deficits and an already beleaguered lender of last resort. (Read: The Federal Government). California is up first, followed hard-upon by three or four other fiscal cesspools of municipal origin. Facing a $21 billion dollar shortfall for the remainder of this fiscal year (assuming no population outflows and stable tax collection over the period- try to contain your snickering) with another $14.5 or so billion in 2010-2011, California is getting few headlines on this issue simply because it has become so rote. Just for perspective, as recently as August, the Department of Finance figured this latter number at $7.4 billion. Whoops.
The Los Angeles Times manages, after twenty paragraphs, to accidentally trip over the central issue:
The state's financial problems predate the current recession and the gimmicks used to paper over the deficit, experts say. Year in and year out, state government spends roughly $10 billion more than it collects in tax revenue.
Thank heaven for experts.
California, having somehow already carved out from what used to be a federal republic the ability to print its own currency, seems to have considered some additional and very drastic measures to avoid paying its debts. The Governator's own finance director apparently considered actual secession to short-circuit the state's obligations and continue enjoying the long established pattern of deficit spending they have hitherto established.
California's finances have been so bad that the governor's finance director, Mike Genest, told a budget forum in Washington last week that back in February he had combed through the U.S. Constitution to research whether California could legally declare bankruptcy -- or revert to some kind of territorial status. (Neither was realistic, he determined.)[fn]"California Faces a Projected Deficit of $21 Billion," The Los Angeles Times, November 18, 2009.[/fn]
The budget forum the Los Angeles Times is referring to was titled "Perspectives: Beyond California - States in Fiscal Peril," held November 13th at the Pew Center on the States. You can listen to the entire thing here (92:32 minutes, 47MB .mp3), or read the forum's report which Zero Hedge has thoughtfully attached to this post. What emerges are the haunting sounds announcing the first death rattles of bloated state budgets and a glimpse of the eventual fate of tax-and-spend economies.
In the end, California's problems probably boil down to a lack of imagination. After all, with the right kind of government lawyers, it should be easy to pen an opinion letter authorizing a quick departure from the Union followed by a hasty (and debt free) re-annexation. Presto-chang-o! Debt-be-gone.
Or you can stop pouring cash into cushy social programs, stop paying your civil servants $200,000 per year and quit giving out 90% lifetime pensions at age 50-55.
Just sayin' is all.