Confused? Here’s an Easy-To-Understand Explanation of California’s Money Problems

Here’s an easy to understand overview of California’s money problems.

There are two separate problems. First, there’s the short-term revenue problem. Second, there’s the budget shortfall.

The Short-Term Revenue Problem

Every October, state revenue dips and California usually runs out of cash.  We never notice it because the state gets short term bank loans which are paid back once income picks up.  These loans are called “short-term bonds.” These “short-term bonds” may sound fancy, but they’re no different than the payday loan you get at the you get at the check cashing place next to the donuts-and-$1 Chinese-food store.

The problem this year is that banks aren’t in the money-loaning-mood, not even to a good customer like California.

Last week, Gov. Schwarzenegger gave the feds a heads up that if the banks don’t come through, we may need to borrow $7 billion from the federal government to get us through the rest of the year. Congress is in even less of a money-loaning-mood than the banks, and by all accounts the feds aren’t going to pony up the $7 billion.

If California does not get the loan, the state runs out of cash on October 29.

What happens when the State runs out of cash?  Nothing good (more on that in the coming days).

The Budget Shortfall

Whether we get the $7 billion loan or not, there’s still the problem of funding the 85-day-late $103 billion budget we passed a couple of weeks back.  State Controller John Chiang just unleashed this blast of press-release sunshine:

“The first quarter of the fiscal year has just ended, and we already are short $1.1 billion. Revenues are deteriorating faster than expected, and September’s cash flows send strong signals that the recently-enacted budget is more out of balance than we feared.”

The Sac Bee reports that this $1.1 billion shortfall could become a $5 billion shortfall by the end of the fiscal year and by June 2010, we’ll be $18 billion short.

Want more good news? Earlier this week,  a federal court ordered California to increase the spending on health care for prisoners by $3 billion — payable by July 1, 2009. This is only the first installment of a multi-year $8 billion plan.  (Yes, prisons.  This is a serious public health, legal, and moral issue so before you go all cowboy-justice-let-’em-rot on me, read this article).   Of course, we could solve this problem by releasing non-violent prisoners (more on that, and Prop. 5, in the next days and weeks).

Bottom line:  By Summer ’09, California will be unable to pay for $8 billion in state program and services (the $5 billion we’re already short + the $3 billion in prison health care).  By June ’10, California will be unable to pay for $23 billion in state programs in services (the projected $18 billion shortfall + $5 billion in prison health care).

Other Problems

Here’s another bit of advice: If you did something to piss off your boss, you better go apologize. The State unemployment fund is running out of money: Says the Sac Bee:

With California’s unemployment rate surging to a 12-year high, the state’s unemployment insurance fund is paying out as much as $27 million in benefits a day – and it could be $500 million in the red by January, officials warned Tuesday.

But the housing crisis is getting fixed, right? Nope. 1300 Californians are still losing their homes every day.