The California Budget

[alfred russel]

There have been plenty of news stories of the budget crisis in California. I've looked up some numbers for 2007 (the last year I could find in a quick internet search):

California:
Debt per Capita: $3,151
Rank of Debt per Capita: 23
Debt as a % of GDP: 6.45%

Massachusetts:
Debt per Capita: $10,546
Rank of Debt per Capita: 1
Debt as a % of GDP: 19.78%

National Average:
Debt per Capita: $3,124
Debt as a % of GDP: 6.98%

http://www.taxfoundation.org/research/show/268.html

The current budget crisis has the budget deficit at about $40 billion next year, and with about 33 million that works out to about $1,200 a person. Certainly not good, but would it really be that bad if it wasn't so hard for California to raise taxes?

[Admiral Yi]

I assume the limiting factor is the constitutional requirement for a balanced budget, not the state's ability to borrow.

[MadImmortalMan]

Cali's bond rating is pretty crap atm I think.

[Barrister]

You're comparing a lot of bad apples. IMHO.  Why is any amount of debt considered to be acceptable?

I just double-checked - Yukon has no debt.

http://www.finance.gov.yk.ca/pdf/budget/2008_09_longterm_e.pdf

[KRonn]

Maybe I'm not interpretating the figures right, but Massachusetts looks in bad shape by comparison to other states. I live in Mass, and while things are financially bad, it doesn't appear to be as bad as other states but those figures would seem to say otherwise.

[alfred russel]

You're comparing a lot of bad apples. IMHO.  Why is any amount of debt considered to be acceptable?

I just double-checked - Yukon has no debt.

http://www.finance.gov.yk.ca/pdf/budget/2008_09_longterm_e.pdf

Neither of us gets to decide the debt levels of our governments, but we have reason to be concerned if they aren't sustainable.

KRonn, that is how I would interpret the figures as well, but I don't know much about the finances of any state government so there may be mitigating circumstances.

Yi, the reason I did a search for California state finances was that I saw several news stories about a potential default of California. Are you saying the crisis is about amendments limiting the ability of the state to raise debt, rather than the ability of its economy to cover the deficits/debt?

[saskganesh]

You're comparing a lot of bad apples. IMHO.  Why is any amount of debt considered to be acceptable?

I just double-checked - Yukon has no debt.

http://www.finance.gov.yk.ca/pdf/budget/2008_09_longterm_e.pdf

its easy to be balanced when you get a $564 million annual grant from the feds. that's outside of transfer payments.

in the real world, your government would have a horrible deficit trying to maintain the services that you depend on.

[Admiral Yi]

Yi, the reason I did a search for California state finances was that I saw several news stories about a potential default of California. Are you saying the crisis is about amendments limiting the ability of the state to raise debt, rather than the ability of its economy to cover the deficits/debt?

I was unaware there was the potential of default.  Seems pretty clear it's not the second reason.

[DontSayBanana]

NJ's at 6.

New Jersey:
Debt per Capita: $5,923
Rank of Debt per Capita: 6
Debt as a % of GDP: 11.25%

NJ technically has defaulted; the difference being that all kinds of automatic tax hikes are activated whenever certain arms of the NJ state government, such as NJ's failure to bring the unemployment trust fund above 0 by December 31st.

[Barrister]

You're comparing a lot of bad apples. IMHO.  Why is any amount of debt considered to be acceptable?

I just double-checked - Yukon has no debt.

http://www.finance.gov.yk.ca/pdf/budget/2008_09_longterm_e.pdf

its easy to be balanced when you get a $564 million annual grant from the feds. that's outside of transfer payments.

in the real world, your government would have a horrible deficit trying to maintain the services that you depend on.

I'm not going to deny that Yukon sucks deeply on the sweet, sweet teat of federal government spending.

But, as much as out premier is a heroin-smuggling fiend, at least we have no debt.  Neither does Alberta.  Hell - until very recently the Federal government itself had no deficit.

There's no "acceptable" level of debt for a sovereign government IMHO.

[saskganesh]

You're comparing a lot of bad apples. IMHO.  Why is any amount of debt considered to be acceptable?

I just double-checked - Yukon has no debt.

http://www.finance.gov.yk.ca/pdf/budget/2008_09_longterm_e.pdf

its easy to be balanced when you get a $564 million annual grant from the feds. that's outside of transfer payments.

in the real world, your government would have a horrible deficit trying to maintain the services that you depend on.

I'm not going to deny that Yukon sucks deeply on the sweet, sweet teat of federal government spending.

But, as much as out premier is a heroin-smuggling fiend, at least we have no debt.  Neither does Alberta.  Hell - until very recently the Federal government itself had no deficit.

There's no "acceptable" level of debt for a sovereign government IMHO.

sure there is. you base it on future, projected, income.

as a homeowner you go into debt purchasing housing, this creates large long term benefits for you as well as an asset. its similar for governments, but the trick is, people are also assets, not liabilities, so they are worth investing in by maintaining services.

[PDH]

I am leery of this, since it reports Wyoming as having a per capita state GDP debt of $2300...when the vast majority of the state spending and income is based on severance taxes (and a fixed percentage of that goes into a Permanent Mineral Trust Fund).  There is a state sales tax, but no income tax and property taxes are fairly low - my per capita input is quite low.  Is this just taking the total state spending and dividing it by population to show what each person "owes" to make that spending?

[grumbler]

I'm not going to deny that Yukon sucks deeply on the sweet, sweet teat of federal government spending.

But, as much as out premier is a heroin-smuggling fiend, at least we have no debt.  Neither does Alberta.  Hell - until very recently the Federal government itself had no deficit.

There's no "acceptable" level of debt for a sovereign government IMHO.

I don't see why you should be rejoicing that Yukon has transferred its debt to Canada. 

I would agree that there is no specific level of government debt that is "acceptable."  Debts should be incurred only as a part of an overall budget plan that best matches resources to needs (and denies the needs that are not cost-effective to serve).

It is hard to believe that just a bit more than 8 years ago, the burning issue in Washington finance was how to pay off the long term bond-holders with all the surplus budget money.

[The Minsky Moment]

There have been plenty of news stories of the budget crisis in California. I've looked up some numbers for 2007 (the last year I could find in a quick internet search):

I believe their fiscal positions has deteriorated very sharply since 07, due to the narrow tax base.  California also suffers from a governance problem, in that the referendum system hamstrings its ability to raise revenue.  So from the POV of a bond investor, it looks risky.

[Neil]

There's no "acceptable" level of debt for a sovereign government IMHO.

I disagree.  Certainly no debt is preferable, but some debt is alright when used wisely and when it will be within the ability of the government to pay back in later years.  Borrowing to fund some infrastructure improvements might be a good idea, whereas borrowing to improve health care is not.