Saturday, May 30, 2009

California's Finance Director Says That It Provides Almost No Services to Most of Its People

The New York Times just cannot resist some purple prose in its headline above an otherwise pretty good article: Deep Cuts Threaten to Reshape California. Reshape the state? Hardly. Major changes? Yes:

Mr. Schwarzenegger, a Republican, is threatening to eliminate the Healthy Family Program, the state’s health insurance program that covers over 900,000 children and is financed with state and federal money, as well as the state’s main welfare program, known as Cal-Works, which provides temporary financial assistance to poor families and a caregiver for the severely disabled. (Ed: Medicaid, for the poorest people, would be unaffected.)

The $1 billion in cuts to programs for the poor would be met with $680 million in new cuts to education and a 5 percent salary reduction for state employees, many of whom are already enduring furloughs.

As the article makes clear, the reality is that:

“Government doesn’t provide services to rich people,” Mike Genest, the state’s finance director, said on a conference call with reporters on Friday. “It doesn’t even really provide services to the middle class.” He added: “You have to cut where the money is (Ed: where it is going, he means).”

So we now know that voters of one of the most reliably blue states has voted its pocketbook. And the state takes it lying down after spewing its own purple prose before the vote:

In less than two weeks, the administration has gone from warning residents that a vote against the budget measures would send the state — some $24 billion in the red — into utter turmoil to sanguine acceptance that “the people have spoken” and that the government must move on.

In fact, it has been reported that if the powers-that-be want to avoid cuts, the state can borrow huge amounts of short-term money, such as for one year, but the rate would be on the order of 3%. (Not so terrible!)

The article concludes:

The Democratic-controlled Legislature has been uncharacteristically silent on most of the cuts, most likely because lawmakers know that tax increases are not politically palatable, that huge cuts in some form are in the offing no matter what, and that any program they wish to spare will quite likely have advocates among their ranks.

“There is no drawing lines in the sand,” said Alicia Trost, the spokeswoman for State Senator Darrell Steinberg, a Democrat and president pro tem. “Everyone knows we’re the majority, and we all know where we stand.”

Where California voters stand is with their heads finally out of the sand and facing reality. Among the reality is of overpaid public officials, as per another NYT article, Industry Fears U.S. May Quit New Car Habit, which describes a prior great new car customer as follows:

The housing and financial crisis has taken its toll on reliable customers like Frank Powell, a school administrator in the East Palo Alto school district in California. He moved out of the house he had lived in since 1983 and started renting a few months ago because of his debt burden, which includes auto loans.

“I used to buy cars all the time and took out loans to pay them off,” he said. “As soon as I paid part of one off I’d get another. I’d buy one for my kids, my wife, myself. I can’t do that anymore.”

He now has a Cadillac Escalade sport-utility vehicle, but he is thinking about downsizing and driving something much smaller — and for longer.

“Something had to change,” he added. “You just can’t keep going with that many cars.”

How did a school administrator get all the money to raise a family and spend tons of money on new car after new car for the whole family, including a Cadillac now? Did he perhaps get paid a bit more than was necessary to incentive him to get up in the morning and go to work? Yours truly was a well-compensated practicing physician and never drove anything more upscale than a Mercury until near retirement.

As Mr. Powell said, something- nay, much- has to change in California.

A start would be for the Mr. Powells of the future to buy small cars or take public transit, to buy as few cars as possible, and to pay for these cars largely or entirely with cash, thus avoiding exorbitant finance charges and helping to keep their financial net worth positive. And what goes for a car goes double for a house. They should buy the least, not the most, house they can afford- as did my parents and those of my wife- and pay off the mortgage as rapidly as possible.

The future Mr. Powells need to ignore the Merchants of Debt who likely upsold him and tens of millions of Americans and begin their own Ownership Society, not the fake "Ownership Society" of the prior President that was based on debt and more debt.

With this sea change toward frugality and balanced state and personal budgets, California can once again lead America to a prosperous future.

Copyright (C) Long Lake LLC 2009

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