- Written by Chriss Street
15 May 2012
CALIFORNIA FINANCIALS - “Only Nixon could go to China” is a political metaphor referring to the ability of a politician with an unassailable reputation among his supporters for staunchly representing and defending their values, to take actions that would draw vicious criticism and fierce opposition if taken by someone without those credentials.
With California’s financial condition in free fall, ultra-union friendly Gov. Jerry Brown demanded public-employee unions cut compensation by 10 percent. If the People’s Republic of California is adopting fiscal responsibility, perhaps America can too.
For unions, Jerry Brown has been the governor who always kept on giving. In 1977, he approved the Dills Act, collective bargaining for California government workers. Last November, he signed SB 922, protecting “project labor agreements” that force non-union workers to apply for union membership, and pay dues, in order to work on public projects.
While predicting a $9.2 billion budget deficit in January, Brown sought to protect public service union jobs by cajoling private sector retailers to support a voter initiative to raise sales taxes. As state tax revenue had fallen by $4.9 billion in February, Brown focused on raising $630,000 in contributions for his tax increase initiative from unions, Indian tribes and crony capitalists. As revenue continuing to fall last month, Brown extended union contracts representing tens of thousands of workers that increased the state’s health benefits by 9.5 percent.
Brown’s good-old-boy support for his union brothers and sisters may have come to a screeching halt as California State Controller John Chiang published a devastating April Financial Statement showing monthly income, sales and corporate tax revenue came in 20.2 percent below the governor’s latest projections; and sales tax collections fell by an astounding 61 percent below last year.
Looking closer into the numbers, California missed the national economic recovery. As U.S. Gross Domestic Product grew by 2.2 percent, California employment grew by only 1.3 percent. Given that the workforce expands by 1.5 percent annually as more young people begin looking for jobs, this explains why California unemployment rose to 11 percent in March from 10.9 percent in February — as U.S. employment fell to 8 percent. Chiang ominously stated:
“Without a timely, financeable budget plan, the State will be unable to access the working capital needed to pay its bills later this year.”
This is bureaucratic speak for: We are insolvent, our credit rating should be junk and we will default when we can’t borrow any more money!
Standard & Poor’s, in a new credit report last week, warned that California lawmakers’ resistance to steep cuts in welfare and health care programs is to blame for failure to balance the state budget:
“As the most important month of the year for [income tax] collections, April receipts are not only failing to solve part of the state’s projected problem, they are deepening the estimated budget gap.”
With the state needing to borrow $20 billion in July to finance operations until collecting property payments in mid-December, this is S&P speak for: We will cut your rating.
California rolled over an $8.2 billion deficit from last year’s budget disaster and this year’s growing deficit has forced the state to increase borrow another $7.7 billion.
The state did cut $1.8 billion, or 8 percent, from operations; and school funding was flat this year. But spending on health and human services jumped by a stunning $3.7 billion, or 6.2 percent.
President Richard Nixon had a reputation as the leader of hardcore Republican anti-communists when he announced he was going to improve relations with China by personally visiting the country in 1972. No Democrat at the time could have absorbed the political blowback of such a spectacular change in America’s foreign policy. Over the next 40 years, America and China have become each other’s most important trading partners
Just as Richard Nixon was the strongest ally of anti-communists, Jerry Brown has been the strongest ally of public-sector unions. Chief Executive Magazine’s survey of best and worst states for business ranks California dead last. According to one CEO:
“The leadership of California has done everything in its power to kill manufacturing jobs in this state. As I stated at our annual meeting, if we could grow our crops in Reno, we’d move our plants tomorrow.”
Given that high taxes and onerous regulatory enforcement were championed by Brown in California and then spread out across the nation, Brown is best positioned to unwind these job killers. When Jerry Brown told state employee union leaders his next budget would include a 10% cut in state worker compensation, there has been little opposition.
Perhaps California’s financial distress may require Jerry Brown to be America’s pro-business governor.
(Chriss Street is nationally recognized financial writer. His latest book, “The Third Way,” now is available on www.amazon.com Read more of Chriss Street and reach him at chrissstreetandcompany.com)
Tags: Chriss Street, Richard Nixon, Jerry Brown, China, John Chiang
Vol 10 Issue 39
Pub: May 15, 2012