Budget Lessons from California

by: Hopeful

Mon Jan 21, 2008 at 12:00:21 PM EST

The $15 billion bond approved by voters in March of that year [2004] to pay down California's persistent gap between spending commitments and revenue collections was the same kind of consolidation, Schwarzenegger said.

"We tore up the credit card," Schwarzenegger said. "Never again will government be allowed to spend money it doesn't have. Never again will the state be allowed to borrow money to pay for its operating expenses."

So how has the same dynamic played out in California?  Sure enough, the borrowed money was real, but the annual budget deficit was not closed.  So once again, Californians are hearing about fixing the system:

"We're anywhere between $10 (billion) and $14 billion in the hole when it comes to the budget," Schwarzenegger said at a recent Long Beach news conference. "This is a common thing for California, that we're going on this rollercoaster ride. What we have to do is fix the budget system. The system itself needs to be fixed, and I think this is a good year, this coming year, to fix it."

I think budget fixes -- whatever they may be -- must precede any asset monetization scheme.  Otherwise, we will be even worse off in four years.