Brother, can you spare $24 billion?
We've been following California's fiscal crisis here at TAPPED for a while now, and one policy option frequently discussed is, ugh, a bailout. ("Rescue! Rescue!" come the e-mails from the press flacks.) There is a case for it, of course: California is a huge part of the U.S. economy, contains 1 in 8 Americans, and is currently facing a $24 billion deficit that will lead to a lot of budget cuts in the face of a recession, exactly when we don't need such cuts -- apparently, Governor Arnold Schwarzenegger is supporting the termination of the state's basic welfare program, which would cut off 1.3 million people, and tax increases are off the table. Now it appears that the Obama administration has turned down early requests for federal aid, suggesting that California needs to deal with its problems itself. Indeed, California could reform its crazy budgeting system, property tax regime, and referendums-gone-wild, but that's hard work for a semi-dysfunctional political system. The administration is rightly worried about yet another costly bailout, and the precedent setting that might lead other states to come looking for help, but with a July 1 deadline it's hard to imagine $24 billion being cut away from the state's budget without seriously damaging California's -- and the country's -- economy. California officials will be coming back to Washington again, hat in hand. Then the question becomes: Is California too big to fail?
-- Tim Fernholz
