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#  California Dreaming

December 05 2011

Written by Al Checchi.

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![](https://www.citywatchla.com/images/stories/Dec-2011/cw997e.png)GUEST WORDS - California has long been the nation's bellwether. Americans would do well to take a lesson from its example:

The exposure during the past few years of the true financial condition of some of America's largest financial institutions begs the question of the fiscal condition of the country's largest state. If greed, self interest, dishonesty, incompetence, insufficient oversight, and lack of transparency are largely responsible for insolvency in the private sector, these are the same motivations and failings that for decades have animated the management of California's dysfunctional government.

It is folly to assume that the implications of this behavior will ultimately be any different for a state than a private institution.

The self delusion manifested in the manner that California's politicians annually present a "balanced" budget only to see it miraculously "unbalance" a few months later, the myopia involved in ignoring the magnitude of future year shortfalls, and the abdication of fiscal responsibility in failing to provide a feasible basis for funding the long term pension and health care obligations promised California's public employees, make Wall Street executives, by comparison, paragons of fiscal responsibility.

As presently structured, California may be insolvent. There is no foreseeable means for California to conduct business as usual while balancing its annual budgets, investing in needed infrastructure and meeting its long term state employee pension and health care obligations.

Given the condition of the federal budget, little help can be anticipated from Washington.

A state that harbors an unfunded long term employee benefit shortfall larger than all the other states combined, massively under-invests in infrastructure, taxes its citizens at among the country's highest rates, and still runs double-digit billion dollar annual budget deficits cannot rely on creditors to fund it indefinitely - certainly not in the more risk averse credit markets that it will face during the next several years.

Much like Italy, Greece, and Spain, as part of a monetary union, e.g. the United States federal government, California and our other fiscally imperiled states cannot print money to "solve" their financial problems.

Yet, neither can California defer indefinitely investments in infrastructure and education. Vital projects in transportation, water, and power are long overdue and California's once leading public school system has become a national scandal.

Significant investment must be undertaken and financed to arrest further decline and make the state viable, attractive, and competitive as a future place to live, invest, and employ. Raising taxes does not appear a viable alternative.

State personal income and business tax rates are already among the country's highest and arguably already job and investment killers. Employment and private capital investment have been migrating for years to low cost states like Nevada, Arizona, Texas, and much of the Southeast.

Unsurprisingly the per capita income and standard of living of Californians have declined steadily relative to the rest of the country and the state unemployment rate is presently 30% higher than the national average. Any material increase in taxes and business costs will merely accelerate the migration to other states.

To reverse the trend would require that California instead reduce these tax rates and costs, something that it cannot presently afford to do.

Many political and economic reforms have been suggested by various think tanks and concerned citizen groups over the past few years. Most have merit and should be enacted. While these might lead to better government in the future, they cannot undo the damage that years of mismanagement have created.

We have seen on the national level the problem created by deferring recognition of the mounting structural problems in the financial markets. Similarly, Californian's political class has for years turned a blind eye to economic reality. The cumulative years of over spending and under-investing have brought California to the brink. Politics as usual practiced by the usual politicians is no longer an option.

Solutions are not going to be pretty. The state may have passed the point where conventional actions will have any material affect and some kind of financial and judicial restructuring will be required.

The sooner that California's citizens, state employees, and elected and appointed government officials recognize the state's true fiscal condition, the less disruptive and ultimately productive will be the measures required to enable California and many similarly imperiled states to make the long term infrastructure investments, and pursue the economic growth oriented public policies necessary for their future prosperity.

*(Al Checchi is chairman of Join Together America, the former chairman of Northwest Airlines, and a former candidate for Governor of California. His new book is [The Change Maker](http://www.amazon.com/Change-Maker-Al-Checchi/dp/1453222073). This article was posted first at [huffingtonpost.com](http://huffingtonpost.com))*  -cw

Tags: California, California economy, California finances, California budget, dysfunctional government, politics, California politics, fiscal crisis

CityWatch
Vol 9 Issue 97
Pub: Dec 6, 2011

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