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California’s Budget Surplus

After years of fiscal trouble, California’s looking at a budget surplus. We’ll look at how they did it and the lessons there.

Gov. Jerry Brown points to a chart showing an increase in education funding in his proposed 2013-14 state budget. (AP)

Gov. Jerry Brown points to a chart showing an increase in education funding in his proposed 2013-14 state budget. (AP)

Since the financial meltdown of ’08, California has often been the national poster child for bad state finances.  Huge fights.  Vicious politics.  Scary red ink.  Bloody cuts in spending on fundamentals.  Prisons.  Schools.

And then last week, there was California Governor Jerry Brown, front and center, talking rebound.  California’s budget deficit, he declared, gone.  New money for K-12.  A billion set aside for a rainy day.  It’s kind of amazing.

This hour, On Point:  How did they do that?  California’s fiscal turnaround, and lessons – if they’re there – for the country.

-Tom Ashbrook

Guests

Vauhini Vara, covers California politics for the Wall Street Journal.

Joe Matthews, fellow at the New America Foundation. Co-author, with Mark Paul, of “California Crackup: How Reform Broke The Golden State and How We Can Fix It.”

Mark Zandi, chief economist of Moody’s Analytics.

From Tom’s Reading List

The Sacramento Bee ”Riding a wave of new tax revenue, California’s spending plan for the coming fiscal year will rise by nearly $5 billion, a powerful indication that the state that came to symbolize fiscal mismanagement during the heart of the recession is emerging into brighter days.”

The Wall Street Journal “California expects general-fund revenue to rise 3.3% to $98.5 billion from $95.4 billion in the current fiscal year, representing the highest level since 2007. The increase comes as California’s economy has improved considerably since the recession that hit the state especially hard. The unemployment rate fell to 9.8% in November from 11.3% a year ago.”

Salon “The governor listed a number of factors that could undermine his budget plan, including uncertain action by Congress to raise the federal debt ceiling, potential increases in health care costs and whether courts or the federal government block some of his proposed spending cuts.”

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  • Wm_James_from_Missouri

    Well what d’ya know ; Governor Jerry Brown is a Democrat.

    • Jasoturner

      Indeed.  And the need to turn this into a partisan battle will no doubt obscure whatever substantive lessons might be derived from the California example.  Sigh.  Why do politicians hate America so much?

      • DrewInGeorgia

        It’s not that Politicians hate America, they just love themselves more.

    • Mike_Card

      Just like his dad and sister.

  • Fiscally_Responsible

    I will believe it when I see it.  And I would hope that they would factor in unfunded liabilities for future commitments to retirement and health care benefits.  I guess that the politicians will now vote for additional salary increases and benefit expansions for the teachers and other public worker union members while they have a supposed glimmer of light concerning state finances.  Watch the AFT/NEA and SEIU start screaming about the need for economic justice!

    • harverdphd

       Brown’s a liar

  • Steve__T

    They would have seen an increase of 1.4 B in tax from Marijuana sales, but Federal crack downs (Obama said he wouldn’t) on dispensary’s cost them all most 150 M. in loss of tax and housing the prisoners. But at least they got something.

  • ToyYoda

    Remember that -at least in Washington- when they talk about cutting the deficit often times they mean cutting how much they *over-spend*.  So instead of spending $100bill more than their yearly budget allows, they cut it down to $90billion and then they call that cutting the deficit.

    Also take surplus.  If you or I owned $100 grand but pocketed $10 grand at the end of the year, can we really consider that a surplus?  It certainly won’t feel like it.  I  wouldn’t cut back my hours and buy a Porsche.  Yet that’s what the government seems to do.  Recall the surplus of the Clinton years, being spent away on in the Bush years on tax breaks and medicinal subsidies.

    So be wary of g-men talking about cutting deficits and surpluses.

  • Gregg Smith

    I don’t think California is a model others should emulate. There are now more people leaving California than there are moving there. That Moonie is projecting a surplus is counting eggs.

    • Mike_Card

      CA pop dropped by 500K between 2008 and 2010, but it is growing again and now exceeds 38 million.  http://en.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_population

      And CA has a relatively larger “shadow” population of uncounted illegal immigrants.

      Jerry Brown was Gov Moonbeam–don’t think he was ever accused of being a Moonie!

      • Gregg Smith

        Moonbeam! That’s right, thanks. I should have looked it up. That was back in the Linda Ronstadt days.

        • Mike_Card

          Yup.  Jer refused to move into the Governor’s mansion, dated Linda Ronstadt, and named Jackson Brown the musician laureate (or something similar).  I think Johnny Carson was credited with the Gov Moonbeam label.

          To be fair, I think Brown is the best-qualified governor in Sacramento for several decades.  Governator, anyone?

  • BHA_in_Vermont

    Proof yet again that Limbaugh is a windbag with no grasp of reality.

    • Ray in VT

      I missed it.  Was there a quote or clip?

      • DrewInGeorgia

        Clip. Standard Rush fare.

        • Ray in VT

          So something that would probably make me utter an ugh and roll my eyes?

          • DrewInGeorgia

            I know it made me roll mine. Amazing how someone that doesn’t have a clue always has the answers.

          • Ray in VT

            I did enjoy his spiel from last week about how the forces that pushed for same sex marriage are now pushing for cultural acceptance of pedophilia.

          • http://profile.yahoo.com/JXSANCUDPIKQSPID5KT2U4XK5Y TF

            Now Ray, all those fine upstanding priests forced by the gummint to perform gay marriages have to let off that tension and righteous torment somehow.

    • jefe68

      The thing that is disturbing is how On Point gave Limbaugh airtime. Why give this man one second of airtime?

      • Ray in VT

        Well, the argument could be made that seeing as how this show seeks to provide a variety of opinion from across the spectrum, and given the size and influence that he has in some circles, then that could/should/does give him a place in the conversation.

        • jefe68

          There are plenty of right wing voices to choses from. Limbaugh is controversial and that alone is why they used the sound-byte. 

          By the way if you think Limbaugh is interested in having a conversation then you are very much mistaken.

          • Ray in VT

            I agree that there are plenty of voices to choose from, and there are certainly many whose views I think are reasonable or rational, and I think that much of what comes out of Rush’s mouth is neither.  Controversy gets attention and can make money.  The latter has certainly been true for many in talk radio.

            I laid out the argument for why one could include Limbaugh in the conversation, but I tried to stay away from making a judgement on whether or not one should.  I don’t think that he’s interested in conversation.  If he was, then he’d probably allow comments on his website.

          • Steve__T

             Agreed. If he wants your opinion he’ll give it to you.

      • Mike_Card

        Maybe to emphasize that the four most influential voices in the republican party:  Limbaugh, Norquist, Kristol, and LaPierre?  Total number of votes to elect = 0.

  • Michiganjf

    Too bad voters can’t get around Republican stupidity on the national level the same way California did:

    By taking individual initiatives straight to the voters and by-passing Congress.

    • http://profile.yahoo.com/JXSANCUDPIKQSPID5KT2U4XK5Y TF

      Yeah, but…

      I don’t like or trust referenda. It results in badly written law (often invalidated by courts) and attracts all of the wrong kinds of people to California to run those campaigns. It many cases the ad campaigns make the standard gamut of political ads look like the Lincoln-Douglas debates.

      And referenda is a sorta genie in the bottle thing: I don’t know of any state which limits the subject of them (I am not an expert-chime in as needed), and we get people voting on the rights and liberties of “The Other” on a regular basis. Not a good idea.

      • Michiganjf

        Good, valid points, of course, but it’d be nice to walk around Republican obstructionism nonetheless.

        As you point out, though, not necessarily a good trade-off… and referendums/ballot initiatives can be pricey, too.

        Still, with gridlock what it is, one always has to consider the lesser of all evils.

        • harverdphd

           I love the gridlock…keeps the kooks away from law

          • http://profile.yahoo.com/JXSANCUDPIKQSPID5KT2U4XK5Y TF

            One more Republican who’s brave enough to come out against governance. I’m glad you’re no longer pretending, no longer hiding it.

    • harverdphd

       What about referendums taking initiatives around liberal democrat stupidity…those were overturned by corrupt judges.

  • DrewInGeorgia

    “Imaginative Investment”

    Isn’t that pretty much what created the whole mess to begin with?

    • http://profile.yahoo.com/JXSANCUDPIKQSPID5KT2U4XK5Y TF

      Yep. Some folks are giving the word “imaginative” a bad name.

  • http://twitter.com/en_b ian berry

    California: Pound for pound, culturally and economically the most productive region on the planet. 

  • http://profile.yahoo.com/JXSANCUDPIKQSPID5KT2U4XK5Y TF

    People are saying “how do we ever get out of that”?

    Well, there is something called a business cycle. There seems to be very little interest in covering that in the mainstream press and the business press when it comes to gov’t deficits and tax receipts.

    When I was a teen, sailing a Sunfish in the saltwater harbor of my town, I was once caught out when then weather turned. It got very windy, very choppy, very fast. The bow hit the waves and went up, and dropped four feet in a matter of seconds.

    I never extrapolated this into “my boat is going to keep dropping 4 feet every second and in half a minute I’ll be on the bottom of the harbor”.

    (I later learned that after I put out a small-craft warning was issued. My dad still kids me about that to this day.)

    • hennorama

      California has come a long way back from the extreme problems of the last few years, and is a reasonable example of a balanced approach.  California has taken measures to address its fiscal issues in a balanced manner, without “selling off the crown jewels.”  They have a long way to go, but with a bit of luck will soon be on a much more sound financial footing.

      California’s projected surplus doesn’t do much to address long-term liabilities, but it does start to repay the short-term debt from recent budget problems.  CA has about $28 billion in debt owed to programs that were raided for cash or underfunded during recent years, as well as bonds sold to cover budget gaps.  Gov. Brown’s plan is to pay back about $23 to $24B of this through 2017, starting with $4.2B in FY 2013.

      This leaves $4 to $5 billion remaining, and does not address the projected shortfalls in state retirement programs (most notably in STRS – the State Teachers Retirement System), and in state retiree health care benefits.  Estimates of the gaps are about $3B annually for STRS, and perhaps another $2-3B annually for retiree health care.  More work is needed on these topics, but economic growth will help a great deal.

      • http://profile.yahoo.com/JXSANCUDPIKQSPID5KT2U4XK5Y TF

        Good nitty-grittying on the numbers.

        I also would like to tangent a bit to how someone described then-Gov Schwarznegger: “The president of 12% of us”*.

        The raw numbers of CA’s budget, with a B after them, sound much bigger to those of us (myself included-maybe you also) who’ve never lived in a state with more than 5 million people.

        *This was back when he was governor, and the right-wing was wondering aloud, “Why can’t the president be an immigrant?” I wonder what happened to that movement?

        • hennorama

          TF – TY for your response and your kind words. The budget details are important, especially when, as you point out, the numbers have ” a B after them.” I used to think a billion dollars was a large number, but that was before I got deep into the Federal budget details, and the numbers with T after them.

          “A billion here, a billion there, pretty soon it adds up to real money.” – attributed to Senator Everett Dirksen, but not confirmed, according to The Dirksen Center.

          http://www.dirksencenter.org/print_emd_billionhere.htm

          As to Ahhhnold – no way the Constitution would be changed to accomodate someone who can’t even properly pronounce the name of the state he governed. Imagine “The Birthers” nonsense multiplied by 100. There was even some discussion in Austria of revoking his Austrian citizenship because Schwarzenegger supported the death penalty. (He’s a dual Austria/United States citizen). Plus, we’ve already had a Groper-In-Chief.

          In my view, Schwarzenegger’s sole accomplishment as CA governor was his work on the environment, creating California’s cap-and-trade program on for carbon credits.

  • jefe68

    What about the large corporations such as Google and Apple using off shore accounts to avoid paying their share of taxes.

    • MrNutso

      Not even off shore.  I seem to recall hearing that Apple is incorporated in Nevada which has not income tax or business tax.  They have an office in Reno that is just a desk and a telephone.

  • calyx43

    We should remember that Governor Brown used the California initiative system to bypass the tax resisters in the legislature to enact Proposition 30, which raised income taxes.  

    A majority of the California public is not dissimilar from the rest of the country, which polls show favors an increase in income taxes on higher income taxpayers, and reforming other special tax privileges for the wealthy and big businesses. Unfortunately, there is no referendum system at the federal level like California’s that President Obama could use to harness that American majority to bypass the mindless no-tax-increase ideologues in Congress.

  • 65noname

    the same right of center to right of right of center range of spin dudes and dudettes that we’ve come to expect on government radio. first, how about asking your guest spinners how they define an “improved” economy.  Is a so-called balanced budget that is achieved by eliminating workers’ pensions, health care for poor children; tution rates that only the 10% can afford, basically eliminating education for public elementary and high school students indications of an “improved” economy?

    How about having guests that seriously deal with those issues as part of the discussion of what a successful economy entails?

    You go neo-lib government radio!!!!!

  • hennorama

    California requires a 2/3 super-majority vote by the legislature in order to pass any tax increases. That’s the main reason Gov. Brown resorted to the Initiative process.
     
    California’s Propostion 30 contains temporary increases to income taxes AND sales taxes.  Here’s the official summary from the Official Voter Information Guide:
     
    “SUMMARY      Put on the Ballot by Petition Signatures
     
    Increases taxes on earnings over $250,000 for seven years and sales taxes by ¼ cent for four years, to fund schools. Guarantees public safety realignment funding. Fiscal Impact: Increased state tax revenues through 2018–19, averaging about $6 billion annually over the next few years. Revenues available for funding state budget. In 2012–13, planned spending reductions, primarily to education programs, would not occur.”
     
    http://voterguide.sos.ca.gov/propositions/30/
     
    Whether these tax increases remain temporary remains to be seen.  Remember how “temporary” the Pres. Bush II Federal tax cuts were, for example.  Democrats now hold a super-majority in the CA legislature, so tax increases would be easier to push through without initiatives.

  • StilllHere

    Zandi, please, the guy has no credibility.

    I’ll wait to see the forensic analysis.  Is this like a Lew surplus, doesn’t include interest on debt?

  • Bruce94

    Good to hear that at least in the short term, things are turning around in CA.  However, given the level of expertise of today’s panel, I was surprised that no mention was made of one of the biggest reasons for the political dysfunction in CA that has historically prevented the state from addressing its fiscal problems, namely, the radicalization of California’s Republican Party.

    The radicalization of the GOP began with the apostle of small government, Ronald Reagan, and later on continued with his minions who were less inclined to compromise than Reagan and more inclined to promote their supply-side delusion and anti-govt. paranoia to the detriment of the economy and our social contract.   

    As alluded to in some of the comments below, when combined with CA’s initiative and referendum system introduced in 1911 and the two-thirds requirement for budget increases initiated in 1933, passage of the infamous Prop. 13 in 1978 ensured the ascendancy of the Radical Right. Prop. 13 required among other things a two-thirds legislative majority on all tax increases–a condition that was NOT imposed on tax cuts.  This means that a one-third minority in the CA state legislature can block any spending or tax increases–a formula which IMO has contributed mightily to the fiscal insanity that today’s guests were so adept at describing.   

    Given California’s history and institutional straitjackets, when one of the two major parties embraces right-wing ideological posturing over reasonable governing and problem solving, it’s not surprising that paralysis on fiscal and tax policy has been the rule rather than the exception in CA until recently. 

    Where else have we observed such self-imposed governmental gridlock undermining our democratic principles and economic well-being?  Just look at the U.S. Senate.  In that venerable institution, an over-abundance of GOP obstructionism has been on display for some time now and was undoubtedly a major factor in slowing economic growth and job creation especially after the “wave” election of 2010 which elevated many Tea Partiers to national office, most of whom were more interested in abusing the filibuster than negotiating.

    • TomK_in_Boston

      Amen. 

      One of the saddest things has been the deterioration of the University of California. CA aimed to provide public higher education as good as any elite private university at virtually no cost to CA residents, and, for a long time, succeeded. The incredible computer and biotech creativity in CA is a direct consequence of the presence of so many UC grads, and of the basic research done in UC labs. UC was a national treasure!

      Now tuition is soaring. It’s still less than private institutions, but no longer almost free. UC is recruiting out of state and international students, so they can pay the full non-resident tuition, reducing the number of slots for CA residents. Faculty doing cutting-edge research are leaving for institutions that don’t have yearly cutbacks.

      Talk about killing the golden goose! I guess it’s better the having the taxes on the romney mansion go up a little.

  • 2Gary2

    I would trade our worthless governor walker here in WI for Brown any day.  hey scooter–where are the 250,000 jobs you kept promising?  Wi is 42 in the nation in job growth.

    • harverdphd

       They’re in California, twit.  You and Cory Thatcher should vote with your feet.

  • http://www.facebook.com/frank.cipriano.71 Frank Cipriano

    There is no budget surplus.  Brown left out all the current debt and only provided figures in relation to his proposals estimating new tax revenue.  Didn’t take into consideration the massive number of businesses that will leave CA this year in order to avaoid said taxes.  Seriously, like we said back in the 70′s..”If it’s Brown, flush it!”

    • harverdphd

       Frank…no problem…just confiscate the wealth of the entertainment elite…problem solved.

  • pete18

    Speaking of spending http://www.usatoday.com/story/opinion/2013/01/14/debt-deficit-obama-congress/1830363/

    “Economist Herbert Stein observed that something that can’t go on
    forever, won’t. The United States can’t go on forever increasing its
    debt by 60% every four years. Therefore, it won’t. The only question is
    how things will stop — smoothly or catastrophically.

    As we head
    into the next debt-ceiling debate, it’s worth considering these words
    from a patriotic senator concerned with America’s future:

    “The
    fact that we are here today to debate raising America’s debt limit is a
    sign of leadership failure. . . . It is a sign that the U.S. government
    can’t pay its own bills. It is a sign that we now depend on ongoing
    financial assistance from foreign countries to finance our government’s
    reckless fiscal policies. … Leadership means that ‘the buck stops
    here.’ Instead, Washington is shifting the burden of bad choices today
    onto the backs of our children and grandchildren. America has a debt
    and a failure of leadership. Americans deserve better. I therefore
    intend to oppose the effort to increase America’s debt limit.”
    The senator? Sen. Barack Obama, in 2006.
    I wish that guy was President now.”

    • TomK_in_Boston

      LOL, Stein, the midget celebrity voodoo economist. Why him, couldn’t you find a quote from one of the kardashians?

      Of course it won’t go on forever. Debt soars in recessions and soars even more in a “systemic banking crisis”, worst since 1929, especially when blended with tax cuts and wars. Then Debt/GDP shrinks in periods of economic growth, and so it goes. Duh. 

      Meanwhile, the corporate media use the threat of the big bad debt bogeyman to try to scare Americans into giving up everything that was won for the middle class since 1929. 

      • pete18

         Did you even read the post, Mr Talking Point?

        • jefe68

          USA Today? Not what one would call a stellar news source. 

          • pete18

             I guess when you can’t cope with the content you just attack the messenger.  It’s an op-ed piece,
            genius.

            Take a look at the quote
            from the senator at the bottom of the post.

        • TomK_in_Boston

          Do you even know what a talking point is, Mr endless repetitions of the horrors of the deficit?

          • pete18

             That is funny coming from you. You have the amusing habit of using talking points in the midst of condemning other people for using talking points, while almost always avoiding the substance of the topic at hand.
             
            I would define a talking point as a repetition of superficial statements, which although sometimes truthful, don’t always directly address the deeper issues within a debate and are used in place of an honest argument. And you?
             
            Your disagreement with other people’s facts, don’t make them talking points. Calling Stein a “midget” is nothing but an ad hominem response in lieu of a real argument. Can you point out anything that he, or Glen Reynolds the writer of the piece, has factually wrong in the article?
             
             
            The point of my first post was to direct you to your beloved president’s blatant hypocrisy regarding the debt ceiling.  I’m wondering which version of Barack Obama you agree with? The 2006 incarnation, who thought that having a debt was an unpatriotic failure of leadership, and who voted against raising the debt ceiling,
            or the 2013 model, who has increased the debt by huge margins and claims that those who don’t want to raise the ceiling now are being irresponsible?
             
            This is not to say that Republicans don’t have their own hypocrisy regarding the debt, but this seems like such an egregious, unprincipled and self serving shift of opinion that it’s hard to imagine that even those who are in an eternal French kiss with the current occupant of the White House could not be at least a tad critical.

          • TomK_in_Boston

            What came across in  your post is the horrors of the big bad deficit, the current dominant righty “talking point”. Me, I’ve never used one, all I present is my own ideas.

            Obama? I’m no big fan of our conservadem Rockefeller Republican. I’m a liberal. Sure he’s a hypocrite. While I’m very sick of choosing the lesser of 2 evils, I think it was better than the hostile takeover of the USA by Bane Capital.

          • pete18

             

            Yes, the horrors of the debt was part of my point. To think
            it’s not a huge problem and that we can continue to increase spending ad
            infinitum while, as the “voodoo midget” has correctly pointed out, expanding the
            debt by 60% every four years, is to be living in a delirium of denial.

             

            You may consider all your thoughts to be original and
            honestly held but you routinely spout the script of the left wing echo chamber,
            word for word, often as glib and superficial responses to real and complex
            issues.  If you truly believe what you

            are doing does not amount to a regular issuing of classic
            leftist agitprop then maybe you should cut the same sort of slack that you
            reserve for yourself to people on the opposite side.  Maybe what they say is equally original and
            honestly held, or what you say might actually reach the level of a talking point
            to ears other than yours.

          • TomK_in_Boston

            As I already said, debt/GDP increases in a major economic crash, and decreases when the economy is strong. It increases more in a “systemic banking crisis” plus unfunded wars and tax cuts. So? Why would anyone think the business cycle is over? Just as debt/GDP exploded due to the bush policies and crash, it will shrink in the next phase of the cycle. Using projections about what will happen if the current conditions persist forever to argue that SS and medicare must be cut is class warfare, in the spirit of “never let a crisis go to waste”.

          • pete18

             

            As of today, the debt is over 16 trillion dollars. It cannot
            be cured with a good business cycle, the math doesn’t work.  Finding ways to cut back unsupportable
            spending is not “scaring Americans into giving up
            everything that was won for the middle class since 1929 ***TALKING POINT****.” It’s
            a necessary step to keep the American economy from tanking.

          • TomK_in_Boston

            Please. Debt caused by a “systemic banking crisis”, wars and tax cuts should not be fixed by cutting the retirement programs. I agree that out military spending and having plutocrats like romney paying 13% tax rates are unsustainable, but, sorry, the #1 issue is the business cycle. The WW2 debt was lost in time, like tears in the rain, in the boom of the 50s, and the same thing can happen to the bush debt.

            Don’t use the results of the bush crash as a class warfare tactic, it’s immoral.

      • hennorama

        Hmmm … now let’s see … whatever could have made Sen. Barack Obama change his mind since 2006?  Probably had nothing at all to do with the worst global financial crisis since the Great Depression, right?  Must have been some other global catastrophe worse than one that nearly made every financial institution in the world fail.  Oh there wasn’t anything else worse you say?  Well in that case …

        Circumstances change, and smart adapt to changing circumstances.

        “He is happy whom circumstances suit his temper; but he Is more excellent who suits his temper to any circumstance.”
        -David Hume

        • Gregg Smith

          Ah, the ol’ spend our way out of debt plan. You cannot be serious. No one drinks that much Kool-Aid. This could have been a blip but Obama made it a crisis. 

          • Fredlinskip

            Roosevelt, Keynes, and Eisenhower, were promoting policies that were boosting U.S. economy and raising quality of life of Americans before you were a “blip” in your Mom’s dreams.

    • Don_B1

      With the growth of the U.S. economy there is NO, repeat NO, reason that the country’s debt cannot “grow.” What is unsustainable is a growing debt to GDP ratio over the long haul, which does NOT, repeat NOT (! ! !), include short-term increases for wars and economic shocks on the order of the Great Recession (2007-2009) and the two shocks, one of 1929-1931, and a second (Henry Morgenthau) one in 1937.

      What makes a deficit sustainable is when the growth of GDP equals or exceeds the growth of the resulting debt, which means that the interest on that debt can continue to be paid.

      This does not mean that high debt-to-GDP ratios are desirable; it means that they can be accepted for short to medium time periods when other factors, such as high unemployment, are more important, as is the case now.

      There is much evidence that once full employment is reached and the economy attains f

    • http://profile.yahoo.com/JXSANCUDPIKQSPID5KT2U4XK5Y TF

      I wish that the bidness cycle of 2006 was now, too. But our FiscallyResponsible folks seem to have totally forgotten what the business cycle is.

      I have the funny feeling that will change, rhetorically, no matter the state of the economy, when a Republican next gets into the White House.

  • Michele

    People tend to forget that a great percentage of California’s problems came from the deregulation of their energy sector.  California deregulated their energy markets in 2000-01 and also decommissioned their coal fired energy plants simultaneously without having cleaner fuel plants online to pickup demand.  This created a market where brokers were charging the State increasingly higher rates for energy and there were no controls in place.  This impacted their budget hugely, so that they were running out of money and operating at reduced power.  The whole state had rolling brown-outs.  The whole thing was managed so poorly that alot of people including Gray Davis lost their jobs.

    • hennorama

      Michele – you’re right that CA energy crisis (really an electricity crisis) added to the state’s long-term debt and budget problems, but some of the details are not accurate.  The State of California was not buying electricity prior to the crisis, except for their own needs.  During the crisis, the state stepped in and bought electricty, but only as a result of the crisis.

      CA didn’t completely deregulate their electricty market – they only deregulated the wholesale market, and left retail price caps in place.  There was more than enough in-state generating capacity in place, but about 40% of it had been sold to so-called independent power producers.  This was part of the “deregulation” process.

      The existing utilities were limited on what they could charge for power, but couldn’t enter into long-term deals with the independent producers.  Utilities were forced to buy any power they couldn’t generate themselves on what was essentially a “spot” market, and sellers could charge whatever the market would bear.  The market was then illegally manipulated by speculators, such as Enron and others, pushing the prices up and up and up.

      The three major Investor-Owned Utilities (with the soon-to-be ironic acronym IOUs), were in a squeeze – the price they could charge was capped, but their costs were unlimited.  They paid something like $12 Billion over what they could charge, driving PG&E into bankruptcy, and SCE and SDG&E to the brink.  Gov. Gray Davis declared a state of emergency and the Legislature authorized the CA Dept. of Water Resources to buy power.  The DWR was allowed to enter into long-term deals to buy electricity (on terriible terms) and to resell the power to PG&E and SCE, at huge losses.

      This wiped out what was the California budget surplus.  Total cost in 2001 was about $11 Billion, with the long-term electricty contracts having a nominal value of about $43B.  The Federal Energy Regulatory Commission (FERC), did almost nothing about this crisis, and upheld the long-term contracts despite finding many schemes that had manipulated the CA electricty markets.  Residential energy prices charged by the IOUs increased by about 25% from 2000 to 2002.

      Sources:
      http://californiaphoton.com/economy/history/EnergyCrisis.html#ref7
      http://www.eia.gov/cneaf/electricity/california/subsequentevents.html
      http://www.cpuc.ca.gov/PUC/energy/Electric+Rates/ENGRD/ratesNCharts_elect.htm

  • Sy2502

    California has a budget surplus? Does it mean they are going to lower our taxes?

    • Fredlinskip

      Can’t get enough of those fiscal deficits and credit downgrades, I suppose?

  • Fredlinskip

    Raising $ to pay down debt??
    -To support education, job growth, health programs, etc. of California citizens.
    What a bizarre concept!!

    Koch bros, Rove, GOP lobbyists better get in there and put a stop to that nonsense right away!!!

ONPOINT
TODAY
Apr 25, 2014
President Barack Obama and ASIMO, an acronym for Advanced Step in Innovative MObility, bow to each other during a youth science event at the National Museum of Emerging Science and Innovation, known as the Miraikan, in Tokyo, Thursday, April 24, 2014. (AP)

Guns in Georgia. Obama in Asia. Affirmative Action. And Joe Biden in Ukraine. Our weekly news roundtable.

Apr 25, 2014
In this Saturday, Aug. 11, 2012 file photo, employees of the New Hampshire state health department set up a temporary clinic at the the middle school in Stratham, N.H., to test hundreds of people for hepatitis C related to an outbreak at nearby Exeter Hospital. A new drug, Sovaldi, is said to successful treat more than 90 percent of Hepatitis C patients. (AP)

Super expensive miracle drugs. How much can we afford to pay?

RECENT
SHOWS
Apr 24, 2014
A Buddhist monk lights the funeral pyre of Nepalese mountaineer Ang Kaji Sherpa, killed in an avalanche on Mount Everest, during his funeral ceremony in Katmandu, Nepal, Monday, April 21, 2014.  (AP)

A Sherpa boycott on Everest after a deadly avalanche. We’ll look at climbing, culture, life, death and money at the top of the world.

 
Apr 24, 2014
Senate President Pro Tem Darrell Steinberg, D-Sacramento, left, talks with Sen. Ed Hernandez, D-Covina at the Capitol in Sacramento, Calif., Monday, April 21, 2014. Hernandez proposed a constitutional amendment that would ask voters to again allow public colleges to use race and ethnicity when considering college applicants. The proposal stalled this year after backlash from Asian Americans. (AP)

California as Exhibit A for what happens when a state bans affirmative action in college admissions. We’ll look at race, college and California.

On Point Blog
On Point Blog
Up At Everest Base Camp, ‘People Still Don’t Know The Ramifications’
Thursday, Apr 24, 2014

With a satellite phone call from Mount Everest’s Base Camp, climber and filmmaker David Breashears informs us that the Everest climbing season “is over.”

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The Week In Seven Soundbites: April 18, 2014
Friday, Apr 18, 2014

Holy week with an unholy shooter. South Koreans scramble to save hundreds. Putin plays to the crowd in questioning. Seven days gave us seven sounds.

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Our Week In The Web: April 18, 2014
Friday, Apr 18, 2014

Space moon oceans, Gabriel García Márquez and the problems with depressing weeks in the news. Also: important / unnecessary infographics that help explain everyone’s favorite 1980′s power ballad.

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