CA Gov Schwarzenegger (R) Floats Plan to Borrow $20B to "FIX" CA Economy

[DealMonkey]

So, Ah-nuld is going to be the inaugurator as of tomorrow... Looks like he's floating a plan to BORROW $20 Billion to fix the CA economy. Is this a good idea? Is Schwartzie taking a cue from Bush who's driving the economy thru deficit spending?

LA Times: Sacramento Braces for Big Power Shift

(Snip)

On Monday, Schwarzenegger will make it even more difficult: He plans to sign an executive order to rescind the tripling of the so-called car tax. The rollback will please millions of motorists and fulfill a key campaign promise. But if he also makes good on a pledge to make whole the local governments that receive the car tax revenue, it will widen the projected $10-billion budget hole next year to $14 billion.

To close the gap, Schwarzenegger faces tough choices. If he relies on spending cuts alone, the severity of the hits to higher education, health care and other programs would spark an uproar among Democrats and, most likely, a public outcry.

If he backs a mix of program cuts and tax hikes ? as Davis did ? he not only would face resistance from GOP lawmakers but also would risk erosion of his own political base. Schwarzenegger's call for fiscal restraint was his main appeal to conservative voters put off by his liberal views on social issues.

To break from the political bind, Schwarzenegger aides have floated a plan to borrow as much as $20 billion to balance the books. The proposed debt, along with a state spending cap long sought by Republicans, would be put before voters in March. Schwarzenegger could frame the ensuing campaign as a choice between borrowing or tax hikes, then claim a voter mandate for either one, depending on the results.

The proposal would be a gamble for Schwarzenegger. On its face, it appears to contradict his pledge during the recall campaign to "teach politicians in Sacramento that they can't spend money we don't have." Repayment of the debt, with interest, could drain nearly $40 billion from the state treasury ? and away from public services ? over perhaps three decades.

Still, over the last three years, Davis and the Legislature relied heavily on borrowing to break budget deadlocks. The bond plan would again spare the Legislature ? and Schwarzenegger ? from the political pain of tax hikes and draconian spending cuts. Republicans have already welcomed the plan.

"All we're doing is cleaning up the final mess of Davis," said Kevin McCarthy of Bakersfield, the newly named Assembly GOP leader.

The proposal would offer an early test of Schwarzenegger's clout because it requires a quick deal with the Legislature. Lawmakers would have to approve it by Dec. 5 to qualify it for the March ballot, exposing Schwarzenegger to a major vote of confidence by Democrats less than three weeks after he takes office.

But many Democrats oppose a spending cap, and their initial reaction to the debt plan has been lukewarm.

"I'm just not confident at this point that that's the right way to go," Wesson said. "That's a lot of dough to be responsible for."

State Treasurer Phil Angelides, a Democrat preparing to run for governor in 2006, has been most outspoken against the plan.

He said Friday it would be "a huge mistake" for Schwarzenegger to "follow a reckless path of massive deficit borrowing, and to masquerade such borrowing as 'the answer' to California's budget crisis."

(Snip)

 

[XZeroII]

What do you expect him to do? Pull money out of thin air? His predecessors have racked up MASSIVE debt and now he has to deal with it. The only way to deal with it is to borrow. Floating bonds is a very common way to raise money. And you can't possibly compare federal spending with state spending. That shows your total lack of understanding of the issue. State spending is much like personal spending. When you are in debt, you can't just start breaking even and expect everything to be ok. If you are $20 billion in debt, you can't just break even every year. You have to rid yourself of that debt. The only way to do that is borrow the money. You will have to pay back massive interest, but the same thing happens when you buy a house. You need to do it.

 

[DealMonkey]

Originally posted by: XZeroII
What do you expect him to do? Pull money out of thin air? His predecessors have racked up MASSIVE debt and now he has to deal with it. The only way to deal with it is to borrow. Floating bonds is a very common way to raise money. And you can't possibly compare federal spending with state spending. That shows your total lack of understanding of the issue. State spending is much like personal spending. When you are in debt, you can't just start breaking even and expect everything to be ok. If you are $20 billion in debt, you can't just break even every year. You have to rid yourself of that debt. The only way to do that is borrow the money. You will have to pay back massive interest, but the same thing happens when you buy a house. You need to do it.

Well, there are other ways too: 1.) Spending cuts. 2.) Tax Increases. So your premise that the ONLY way to deal with it is to borrow money is rather disingenuous. I understand that States can't deficit spend like the fed, but States can go further into debt via bonds, etc., which is an equally dangerous "solution" don't you think?

 

[Drift3r]

Originally posted by: DealMonkey

Originally posted by: XZeroII
What do you expect him to do? Pull money out of thin air? His predecessors have racked up MASSIVE debt and now he has to deal with it. The only way to deal with it is to borrow. Floating bonds is a very common way to raise money. And you can't possibly compare federal spending with state spending. That shows your total lack of understanding of the issue. State spending is much like personal spending. When you are in debt, you can't just start breaking even and expect everything to be ok. If you are $20 billion in debt, you can't just break even every year. You have to rid yourself of that debt. The only way to do that is borrow the money. You will have to pay back massive interest, but the same thing happens when you buy a house. You need to do it.

Well, there are other ways too: 1.) Spending cuts. 2.) Tax Increases. So your premise that the ONLY way to deal with it is to borrow money is rather disingenuous. I understand that States can't deficit spend like the fed, but States can go further into debt via bonds, etc., which is an equally dangerous "solution" don't you think?

If he needs to raise taxes and cut spending big time ( sorry prison guards you can't rape us with your union anymore and raise our DMV bills ) which means you are right. Either way we are up a creek without a paddle. All those bonds need to get paid off somehow and state tax revenue has to be come from somewhere to pay off our debt.

 

[SViscusi]

Originally posted by: XZeroII
You will have to pay back massive interest, but the same thing happens when you buy a house. You need to do it.

But with a house you have a tangible assest at the end of it. Here all you'll have is a bill.

 

[LunarRay]

Now lets see if I understand this... We'll borrow money to balance the budget... sounds a lot like borrowing money to balance the budget to me... but, then I'm not an actor. Oh! I get it.. Our (California) constitution requires a balance budget and we can be like the Federal Government and issue bonds or something. So we have a loophole that we've used before, I guess, to fund current expenses. So, what was the problem then? Part of our general fund will go to service of the debt just like the feds. Here I thought we had a crisis. We'll just push the day of reckoning off to our kids or their's. Heck, let's increase spending and cut taxes too.. I love this actor guy.. And, I voted against him.. what a dummy I am!

 

[Zebo]

Orange County part deux. You people forget CA can't print money like the fed. Sure they can sell bonds but that's not exactly balanced now is it? For every dollar bond you issue assuming a 7-10 year maturation and of course they'll be tax free bonds or else no one is buying, will cost $2-3. So yup she's right the debt is already 60 Billion if this plan goes though. This is insane and will kill Ca real quick like.

 

[HappyPuppy]

California will survive. We have been down before and fought our way to the top.

 

[Jhhnn]

Classic Reaganite voodoo economics- borrow your way out of debt and into prosperity.

Inevitably, the process ends when debt payments become unmanageable, and lenders kick the price of further borrowing thru the roof. Each tax dollar buys the taxpayer less and less, as a greater % goes to interest payments. Check out the situation in Brazil or Argentina if you want a glimpse of the future.

Welcome to the siegfreid and roy school of economics- it's all fun and games, 'til the tiger turns on you....

 

[XZeroII]

What do you people propose for the current debt? There are people who want their money right now. What are you going to tell them? I'm sorry, we don't have the money now, but wait 10 years and we'll pay your salary then. Is this your alternative to borrowing?

 

[Miramonti]

a true republican. shift the debt to the next generation.

 

[rahvin]

He's proposing EXACTLY what you should do in a budget crisis during a recession. If he raises taxes or cuts spending to the limit necessary he will slaughter the economy and lower tax revenue even more. He has to stimulate growth and get out of the recession before they can begin to deal with the debt they already owe. His solution to the debt owed is to move it into long term securities and pay it off at a slower rate and hope we come out of this recession.

The spending cap he is proposing will be the long term solution that will benefit the state, I wish the Feds had one of those.

 

[Spencer278]

Originally posted by: rahvin
He's proposing EXACTLY what you should do in a budget crisis during a recession. If he raises taxes or cuts spending to the limit necessary he will slaughter the economy and lower tax revenue even more. He has to stimulate growth and get out of the recession before they can begin to deal with the debt they already owe. His solution to the debt owed is to move it into long term securities and pay it off at a slower rate and hope we come out of this recession.

The spending cap he is proposing will be the long term solution that will benefit the state, I wish the Feds had one of those.

So how much debt was paid off during the last boom period in the economy? Stimulate the economy is a joke this is just an the reason given to have your cake and eat it to. But in this case you are just eating the next generations cake.

 

[CADsortaGUY]

Originally posted by: Spencer278

Originally posted by: rahvin
He's proposing EXACTLY what you should do in a budget crisis during a recession. If he raises taxes or cuts spending to the limit necessary he will slaughter the economy and lower tax revenue even more. He has to stimulate growth and get out of the recession before they can begin to deal with the debt they already owe. His solution to the debt owed is to move it into long term securities and pay it off at a slower rate and hope we come out of this recession.

The spending cap he is proposing will be the long term solution that will benefit the state, I wish the Feds had one of those.

So how much debt was paid off during the last boom period in the economy? Stimulate the economy is a joke this is just an the reason given to have your cake and eat it to. But in this case you are just eating the next generations cake.

OK, you get Ramen noodles until the budget is fixed Ramen has to be cheaper than Cake and is probably healthier for you too. Time for Cali(and Feds) to tighten their spending belts...ramen should help them loose that gut.

CkG

 

[Red Dawn]

Ahhnuld is a Rockefeller Republican so you shouldn't expect him to act like a real Republican.

 

[DealMonkey]

Originally posted by: XZeroII
What do you people propose for the current debt? There are people who want their money right now. What are you going to tell them? I'm sorry, we don't have the money now, but wait 10 years and we'll pay your salary then. Is this your alternative to borrowing?

I suppose Schwarzenegger should have figured that out and had a REAL plan to fix the CA economy instead of just making a bunch of campaign promises which he had no idea how to implement. I recall Congress wanting to make about the same amount of cash ($20.3 B approx) a LOAN to the Iraqis instead of a GRANT. What did the Senate GOP have to say about that? What the Bushies say? They said: Iraq is too economically weak to take on additional debt right now. And CA isn't? I don't see more borrowing as the "solution" to CA's problems. Instead, it's just adding more to the problem.

 

[dirtboy]

Originally posted by: DealMonkey

Originally posted by: XZeroII
What do you people propose for the current debt? There are people who want their money right now. What are you going to tell them? I'm sorry, we don't have the money now, but wait 10 years and we'll pay your salary then. Is this your alternative to borrowing?

I suppose Schwarzenegger should have figured that out and had a REAL plan to fix the CA economy instead of just making a bunch of campaign promises which he had no idea how to implement. I recall Congress wanting to make about the same amount of cash ($20.3 B approx) a LOAN to the Iraqis instead of a GRANT. What did the Senate GOP have to say about that? What the Bushies say? They said: Iraq is too economically weak to take on additional debt right now. And CA isn't? I don't see more borrowing as the "solution" to CA's problems. Instead, it's just adding more to the problem.

So you don't have a better idea. Figures.

 

[DealMonkey]

Originally posted by: dirtboy

Originally posted by: DealMonkey

Originally posted by: XZeroII
What do you people propose for the current debt? There are people who want their money right now. What are you going to tell them? I'm sorry, we don't have the money now, but wait 10 years and we'll pay your salary then. Is this your alternative to borrowing?

I suppose Schwarzenegger should have figured that out and had a REAL plan to fix the CA economy instead of just making a bunch of campaign promises which he had no idea how to implement. I recall Congress wanting to make about the same amount of cash ($20.3 B approx) a LOAN to the Iraqis instead of a GRANT. What did the Senate GOP have to say about that? What the Bushies say? They said: Iraq is too economically weak to take on additional debt right now. And CA isn't? I don't see more borrowing as the "solution" to CA's problems. Instead, it's just adding more to the problem.

So you don't have a better idea. Figures.

Sure I do dirt, can you read? Scroll up. I already spelled 'em out: Cut services and raise taxes. There you go. Worked in just about every other state. Oh, as an alternate plan: ask Bush for some free money. It worked with Iraq and now that our governor has an (R) next to his name, it should be no problem. Two buddies doing favors for each other. Maybe Arnold could pave the way for Bush in 2004? A little quid pro quo? Whatever it takes. Our gov should be willing to whore himself out for some free republican money.

 

[BaliBabyDoc]

If he raises taxes or cuts spending to the limit necessary he will slaughter the economy and lower tax revenue even more. He has to stimulate growth and get out of the recession before they can begin to deal with the debt they already owe. His solution to the debt owed is to move it into long term securities and pay it off at a slower rate and hope we come out of this recession.

IIRC, Acting governor Schwarzenegger proposed:
1) repealing the car tax increase . . . Outcome: increases budget hole.

2) decreasing the tax burden on business . . . Outcome: (short term) definitely increases budget hole . . . (long term) who knows . . . it really depends on other factors.

3) audit the state budget and ending wasteful spending . . . Outcome: decreases state budget BUT decreases employment (maybe) and shifts costs to munincipal/county government (definitely).

4) holding the line on property taxes (Prop 13) . . . Outcome: disincentive to move to CA since my property taxes would likely exceed Warren Buffet's . . . not to mention lost tax revenue.

5) make native american casinos pay their fair share . . . Outcome: likely nothing; revenue will increase if legislation passes but expect court challenges if the penance is considered excessive. If the costs to the casinos are marginal then the revenue coming to Sacramento would scarcely support Schwarzenegger's after school program.

6) modify worker's comp for private business . . . Outcome: likely nothing; significant legislation is unlikely to survive the Sacramento sausage maker.

 

[SuperTool]

Yeah, let's borrow money. Then when the bill is due, I'll just move to another state
Arnold is basically backpedaling on his spend as much as the state takes in pledge. Now he is going to include debt in what the state takes in, I guess.

 

[Zebo]

I have a feeling this is a master plan by Republicans.. After all bankrupting Orange County forcing them to liquidate 2 billion dollars of county land and other capital assests to those lucky (read rich) to snatch up these assests at fire sale prices... Made the rich a bit richer. They (overwhelmingly conservative OC) also got deep cuts in public services and hundreds of layoffs of county employees.. my youngest sigling was in JHS at the time in costa mesa and class size went from about 15 to 40.. Remember cheap labor repulicans. Their goal is to bankrupt CA provide zero sevices of worker protections and have cheap labor benefiting the elite. Unpayable bonds will do this.

 

[rahvin]

Originally posted by: Spencer278

Originally posted by: rahvin
He's proposing EXACTLY what you should do in a budget crisis during a recession. If he raises taxes or cuts spending to the limit necessary he will slaughter the economy and lower tax revenue even more. He has to stimulate growth and get out of the recession before they can begin to deal with the debt they already owe. His solution to the debt owed is to move it into long term securities and pay it off at a slower rate and hope we come out of this recession.

The spending cap he is proposing will be the long term solution that will benefit the state, I wish the Feds had one of those.

So how much debt was paid off during the last boom period in the economy? Stimulate the economy is a joke this is just an the reason given to have your cake and eat it to. But in this case you are just eating the next generations cake.

Comparing a state government to the federal is a very very bad comparision that you should never make. Basic economic principle is that in times of recession the government deficet spends to stimulate the economy and pays off the debt during good economic times. Our federal congresscritters understand the first and not the latter. Because Arnold professes to support the first does not mean he ignores the latter. In fact the spending cap he proposed would ensure the future legislatures and governers do not ignore the latter. As the debt payments would automatically be figured into the state budget the spending caps would prevent a deficiet spending during good economic times. Arnold will likely not be governor during the good economic times that will follow and he has proposed a solution to prevent future politicians from abusing the lattitude he is asking for to fix the states economic problems.

I'm willing to bet that you see very strong opposition to the spending limits proposed as they would force a balanced budget on the state.

 

[XZeroII]

Originally posted by: DealMonkey

Originally posted by: dirtboy

Originally posted by: DealMonkey

Originally posted by: XZeroII
What do you people propose for the current debt? There are people who want their money right now. What are you going to tell them? I'm sorry, we don't have the money now, but wait 10 years and we'll pay your salary then. Is this your alternative to borrowing?

I suppose Schwarzenegger should have figured that out and had a REAL plan to fix the CA economy instead of just making a bunch of campaign promises which he had no idea how to implement. I recall Congress wanting to make about the same amount of cash ($20.3 B approx) a LOAN to the Iraqis instead of a GRANT. What did the Senate GOP have to say about that? What the Bushies say? They said: Iraq is too economically weak to take on additional debt right now. And CA isn't? I don't see more borrowing as the "solution" to CA's problems. Instead, it's just adding more to the problem.

So you don't have a better idea. Figures.

Sure I do dirt, can you read? Scroll up. I already spelled 'em out: Cut services and raise taxes. There you go. Worked in just about every other state. Oh, as an alternate plan: ask Bush for some free money. It worked with Iraq and now that our governor has an (R) next to his name, it should be no problem. Two buddies doing favors for each other. Maybe Arnold could pave the way for Bush in 2004? A little quid pro quo? Whatever it takes. Our gov should be willing to whore himself out for some free republican money.

Your solution addresses future debt (and I agree with you about cutting services), but what about the current debt?
"and had a REAL plan to fix the CA economy "
Bonds are a REAL plan. Are you just trolling or something? Do you not understand how money works? Do you not understand how business' work? Bonds are how you raise money. CA needs lots of money RIGHT NOW. Not 10 years from now, but right now. If we were to only implement your idea, CA would have to do without any services for an entire year to pay that all off. Your idea of raising taxes also shows your lack of understanding of the situation. The economy is recovering, so a small tax increase may be possible, but anything larger than that would have a devistating effect on the economy. The Bond solution is the best and only viable way to go. If you knew ANYTHING about how economics and accounting work, you would agree.

 

[KEV1N]

A little off topic: if Arnold repeals the car registration fee hike... will those who have already paid receive a rebate?

 

[DealMonkey]

Originally posted by: XZeroII
Your solution addresses future debt (and I agree with you about cutting services), but what about the current debt?
"and had a REAL plan to fix the CA economy "
Bonds are a REAL plan. Are you just trolling or something? Do you not understand how money works? Do you not understand how business' work? Bonds are how you raise money. CA needs lots of money RIGHT NOW. Not 10 years from now, but right now. If we were to only implement your idea, CA would have to do without any services for an entire year to pay that all off. Your idea of raising taxes also shows your lack of understanding of the situation. The economy is recovering, so a small tax increase may be possible, but anything larger than that would have a devistating effect on the economy. The Bond solution is the best and only viable way to go. If you knew ANYTHING about how economics and accounting work, you would agree.

TX had a roughly $10 B budget deficit this year and resolved it through cuts in services across the board and slight fee increases. Why can't CA do the same thing? Granted our deficit is a bit higher at around $18 B, but why not take the same approach?