State, Municipal Governments Feeling Pain

In a scene likely to be played out in states and municipalities nationwide, things are starting to implode in California at the state level, the county level, and the city level.

Statewide, Schwarzenegger orders hiring and contract slowdown.

Gov. Arnold Schwarzenegger on Tuesday ordered additional cuts across the state bureaucracy that will slow down state hiring and nonessential service contracts - a move he said could save the cash-strapped state $100 million by June 30.

Schwarzenegger issued the order on the heels of a $2 billion midyear budget reduction to deal with the state's projected $14.5 billion deficit. The governor also urged the Democratic-led Legislature to immediately begin working on more cuts for the 2008-09 fiscal year, which begins July 1. Schwarzenegger resisted calls by Democratic leaders to balance the state's shortfall through a combination of cuts and taxes.

"Every day we wait, we're going to have to make more cuts," the governor said. Schwarzenegger said the cuts will apply to his office, although it may not affect his own travel expenses. "For me, personally, I pay for a lot of it myself so I don't have to worry about those things," Schwarzenegger said.

California is $14.5 billion in the hole and so far I only see $2.1 billion in cutbacks. Lots more pain is coming. So far, no hard choices have been made.

Vallerjo California On Verge Of Bankruptcy

In what could be a warning shot for the nation, the city of Vallejo California Is On The Brink Of Bankruptcy.

The city of Vallejo just fired one huge warning shot for a situation that is going to play out nationwide. Here are the issues.

• City and state governments have negotiated salary arrangements that are not affordable.
• City and state governments have guaranteed pension benefits to teachers, fire fighters, police, and other city and state employees that cannot possibly be met.
• Taxpayers cannot possibly afford higher taxes to pay bloated pension benefits of government workers in sweetheart deals.
• Should Vallejo file for bankruptcy, there will likely be a ripple effect in the pricing of municipal bonds.

El Dorado County Forced To Cut Budget

The Sacbee is reporting El Dorado County considers where to cut budget.

Museum and bookmobile services might be curtailed and a surcharge added to cell phone bills as part of El Dorado County's efforts to close a projected $15.6 million budget gap in the coming fiscal year.

Laura Gill, county chief administrative officer, outlined several potential cost-saving measures, including workforce reductions, during Tuesday's Board of Supervisors meeting. Those identified so far would reduce the shortfall about by about $9.5 million, she said.

Budget Shortfalls

• Property tax revenues are expected to fall $305,000 short of projections.
• Supplemental property taxes are expected to be about $1.35 million less than budgeted.
• A $711,777 shortfall in property transfer taxes is anticipated.
• A $763,708 shortfall in sales tax revenue is anticipated.

I am not sure where the rest of the shortfall is, since that only adds up to $3.13 million. However, those kinds of shortfalls are likely to every city and county budget in the entire state. Services will have to be reduced, taxes raised, pink slips handed out or some combination thereof.

Proposed Savings

• A three-day closure of county offices between Christmas and New Year's Day also would save about $650,000. [My Question: If you can close them for 3 days in December why can't you close them once or even twice a week all year?]
• Savings could be achieved by closing the county Historical Museum and eliminating the library's bookmobile service, Gill said. [My Question: Why are you running a bookmobile service anyway?]
• Other ideas include reducing the $110,000 general fund subsidy to county airports and freezing the county's promotions budget at the 2008 level. [My Question: Exactly why are taxpayers subsidizing the county airport to the tune of $110,000?]
• Reducing fixed asset purchases would save $745,000
• Consolidating Development Services and Department of Transportation operations in El Dorado Hills in one building would save about $250,000
• A tax on cell phone bills and would generate about $1.5 million annually

Let's see... If closing the county offices for three days would save $650,000 then closing them 52 days would save $11.267 million. That would be my vote if I was on the board of supervisors. And given that $9.5 million items were already identified, I would drop the cell phone charge and return the extra $4-5 million still left over to the taxpayers via reduced taxes.

For states, cities, and counties, budget constraints are forcing choices to be made, not just in California, but across the nation. The Courage To Choose Wisely has never been as important as it is now.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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