Back from Chicago last night; cold, sad, alien to me in a lot of ways (I'm not someone who's used to saying grace at every meal, much less an involved, actual prayer as opposed to a "thanks for the grub, yay God" type grace) but a fitting conclusion to a life and another bolt in the scaffolding I will spend a lifetime to erect tying me to TG and her family. And now back to blogging. Kevin (Calpundit) Drum has a post on the California propositions, specifically the proposition issuing $15 Billion (with a B) in bonds to cover the overspending and undertaxing of the last three years of the Davis Administration. He links to a great (technical) explanation (pdf file) of the various debt instruments floating around out there. Then he sets out his position on the bond issue:
Rather, California has $14 billion in short term debt that we have to pay off in June. That's what the bonds are for.
But if the bond measure doesn't pass (and if the legislature's bonds get overturned in court), what can we do? Answer: we can issue more short term debt. Now, there are indeed problems with this. The short term debt would be issued at a higher interest rate, it would put a pretty tight straitjacket on state spending, and it would have to be paid back fairly quickly. However, it wouldn't be fiscal Armageddon. What it would be is a firm order to the legislature to raise taxes and cut spending in order to pay off the short term debt. This is what should have happened years ago, and painful as it may be, it's now obvious to me that this is still an option. Arnold wants to have it both ways: he wants to have a tax cut and he wants a bond measure to help finance it. This is almost Kafka-esque irresponsibility and I think it's time to cut the crap. The only way to get ourselves out of the mess we're in is via both spending cuts and tax increases. So despite the undoubted problems it's going to cause, I think Californians ought to vote No on 57. Combined with a Yes vote on 56, which allows the legislature to raise taxes, and the line item veto, which allows every California governor to cut spending to his heart's content, we have all the tools we need to bring the budget into balance. It's time for everyone to grow up. If the credit card is a bad idea next year, it's a bad idea this year too. Let's go ahead and tear it up.It's kind of an appealing position, and I'm tempted, but won't bite. Really, for two reasons: First, because I know too many people at the local government level who will get slaughtered by this; as I noted a while ago, the common pattern is to shove the problem downstream by hammering the budget crisis down one level - federal to state, state to local - and the reality is that the crisis will hit hardest at the lowest levels of government, where the rubber meets the road. The crisis might be short-term, but it still will be hard as hell. Second, because there is nothing in his mix of Yes on Prop 56 and No on Prop 57 that will convince me that spending will really be capped; Kevin convieniently ignores 58, which mandates a balanced budget and reserve, and sets some Draconian penalties for failure to enact the balanced budget or respond to a declaration of financial emergency by the Governor (note: Kevin did endorse it earlier). I'm dubious about 56; I may support it, but I'd be more interested if it (a reduction in the 2/3 supermajority California requires to pass a budget) was tied to something improving our horribly gerrymandered legislative districts. I'll make up my mind on this one in the next few days. I will vote Yes on 58, and I also will vote Yes on 57. Maybe I've had too much experience doing workouts in business, where the first issue is to establish liquidity and get out of the short-term debt crisis-to-crisis lending cycle. Kevin is right about managing household finances (something I ought be better at); but he's wrong about corporate ones. And I'll argue with some conviction that the finances involved in running the state are closer to that - to complex corporate finance - than to homilies about individual fiscal responsibility. I wish we didn't have to mandate a balanced budget. I wish we segregated capital expenditures and amortized them over their lifetime in the budget, instead of paying for them up front. Hell, I wish for lots of things. But since I picked up our wedding rings today, I'm sure that at least some of them are going to come true.