Claremont Insider: Dept. of Downhill Rolling

Tuesday, November 18, 2008

Dept. of Downhill Rolling


The Sacramento Bee's Capitol Alert sent out an update on the state's budget problems, which are affecting every aspect of state and local government. Capitol Alert warns that towns like Claremont that rely on CalPERS for their employee pension plans may have to pony up more money to cover their pension obligations because of the steep declines in the CalPERS investment portfolio, Something we commented on a few days ago.

Education, too, figures to take a big hit. Here's what Capitol Alert had to say:

There's just no getting away from the state's money woes.

Case in point: CalPERS' board of administration meets this week. You may recall that the big pension fund recently disclosed a $3.2 billion decline in its housing portfolio.

CalPERS has already warned that it might have to demand higher pension contributions from the state, municipalities and other government entities that rely on it.

The California State University board of trustees also meets this week to look at proposed midyear cuts in education funding.

The California Faculty Association and the Alliance for the CSU are planning a rally in protest outside the chancellor's office in Long Beach.

Meanwhile, Mark Yudof, the University of California's new president, talks tonight at San Francisco's Commonwealth Club about -- what else -- the challenges facing the state's higher education system.

One of those challenges: the Schwarzenegger administration's proposal to whack $132 million from the university system's spending.


If you were thinking about trying to escape from the economic doldrums by drowning your sorrows, think again, dear reader. The Capitol Alert blog also included information on Governor Schwarzenegger's proposed drinking taxes:
The California Taxpayers Association says it's obtained details of the proposed new taxes on alcoholic beverages, to wit:

-The tax on beer would climb from 20 cents a gallon to 73 cents;

-The tax on wine, now 20 cents a gallon on most forms, would jump by $1.28; and

-Taxes on whiskey, vodka and other distilled spirits would go from $3.30 a gallon to $7.57.


California is hardly alone in its fiscal troubles. The New York Times yesterday ran an article about the impact the global economic crisis is having on state and local governments. Notice the bit about the higher costs of bonded indebtedness. Looks like we here in Claremont may have to wait on that new police station:
“Frankly, I thought 2001 was really awful,” said Scott D. Pattison, the executive director of the National Association of State Budget Officers, referring to the last big economic downturn. “It is even worse now.”

He added, “This fiscal year will be really bad, and what is unfortunate is that I can’t see how 2010 won’t be bad too.”

....In addition, the crisis in the financial markets had immediate and widespread impact on state budgets. States have lost revenues from capital gains taxes and bonuses that have evaporated, and growing job losses have reduced state income taxes while draining unemployment funds.

“What we are seeing is when fewer people are working there is less income tax and less spending,” said Keith Dailey, a spokesman for Gov. Ted Strickland of Ohio, a Democrat.

Americans have also stopped shopping, which has hurt states that are heavily reliant on sales taxes, like Florida and Arizona. States that rely on tourism, like Nevada and Hawaii, have also been hurt by less consumer spending.

Further, the national credit crunch makes it harder for businesses to get loans, which trickles back into losses to states. When California was temporarily unable to gain access to the credit markets in the days leading up to the federal bailout package, state budget directors across the country noted the moment with horror.

The state’s brief inability to pay bills because it could not get credit — California, like many states, regularly borrows money when it is short of cash in anticipation of revenue flowing in later — has since been largely interpreted as an outgrowth of the much larger national and international credit crisis. Still, some budget experts said the problem could be a harbinger: cities and counties with poor credit ratings could be cut off in the coming year, and there could be higher costs for issuing bonds.