Comment by generalpass | Hacker News Reader

Comment by generalpass | Hacker News Reader

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State and local governments are about to fade into nothing. The report last night that California is projecting a $54 billion shortfall hasn't had traction anywhere. Note they spent years building up a $20 billion rainy day fund. [1]

This is serious, because the cuts they are going to be forced to take are incredible:

> Required funding for K-12 schools and community colleges will shrink by $18.3 billion, under Proposition 98’s constitutional calculation. That’s more than twice the $8.3 billion California spent out of its general fund last year on its university systems.

And even that article doesn't mention CalPERS, which is almost assuredly going start hitting its limits where it requires local governments to contribute a whole bunch more along with a bunch of other really bad stuff. The public pensions/unions are the single powerful lobby in the state.

I'm betting California isn't even the worst, and I'm also betting the shortfall will be yet higher.

I really do hope I'm wrong.

[1] Coronavirus blows a $54 billion hole in California’s budget. Here are the “jaw-dropping” numbers Projected deficit nearly three times Rainy Day Fund

https://www.mercurynews.com/2020/05/07/california-budget-to-...

Let’s hold off on the idea that the California government is going to fade into nothing. From the linked article:

“However, the report concludes that the projected deficit as a percent of general fund spending “is modestly smaller than the budget deficits faced by the state in 2003 and in 2009,”

Also, I suspect there are a lot of Californians right now who trust their state leadership a more than federal leadership. (I am one of those people.)

I don't remember the details offhand, but there was that amendment that passed since then which changes what the state can do when it runs deficits.

Both of those recession deficits were after years of economic decline. This economic decline is less than 8 weeks old. I was hyperbolic, but I'm not sure by how much.

What we haven't seen yet is that Fauci and others have stated there will be regional lockdowns when there are "outbreaks". I suspect that as soon as the business community sees this, many more will just close up permanently, even if they aren't in the locked down regions because many can't survive another lockdown and are risking almost everything to open up now.

Do you have a feel for how this compares with other states?

Many states are going to be in even worse shape.

Some of the (suspected and unstated) motivations for states deciding to "reopen" against medical advice is that it allows the state to get people their off unemployment rolls. This is going to be a huge factor that varies state-to-state.

The Feds could, you know, do something to help.

But this is exactly what Republicans want. Shrink government spending.

Well, that's what they tell their constituents. In practice, they increase budgets, run deficits, and increase debt every year.

Federal budget figures over the last 5 presidencies (and many other similar figures) say otherwise.

They do the exact opposite when they are in power though.

This is even harder than it sounds, for reasons good and bad.

If anyone is still bothering to follow the Constitution, the funds have to be distributed across the states, so you can't just give California only some funds.

It is also politically infeasible to give just California funds, most especially because a whole bunch of states don't want to pay for the other states.

Even if it gets passed that, this is the kind of spending that is virtually guaranteed to increase consumer price inflation, which is a far worse problem than state budget shortfalls.

>> this is the kind of spending that is virtually guaranteed to increase consumer price inflation

Why would this kind of spending increase CPI more than other kinds of bailout spending, and what kind of spending might it be?

I guess TARP, QE, corporate bonds, etc., are buying things that consumers don't directly buy very much, so those programs didn't apparently cause lots of inflation of CPI indexed things.

So what would this be buying instead? Could the fed buy things like municiple bonds, or maybe other debts assumed at the state level to provide liquidity and keep interest rates/ratings under control?

I don't see consumers caring as much about the price of municiple bonds, for example, as food or houses or cars.

I am a rank initiate in this area, so if I'm missing something I'd like to know more.

The distortions in the markets caused by new money creates a lot of very serious systemic issues, it just doesn't do much to price inflation (or, at least, hasn't) because the money has been remaining in financial instruments.

Most of the state budget is going to be things like welfare (e.g., health care), unemployment payments, and salaries of state employees. Some infrastructure, but then much of that goes to salaries, too.

Purchase of bonds is the same thing. The money is still created and spent. It's kind of a good deal for the city because by the time they have to pay it back it may cost more to cut a check than what is left on the principal, but of course that also means that every bit of wealth has been reduced to zero.

Many municipalities have passed laws (usually through initiatives) that forbid the cities from borrowing without a vote, and even in California voters do not just automatically pass every bond measure. However, the state might be able to pass bonds, but it looks like there are some hurdles even for that. I found what I thought was an amendment is a referendum and was pass in 2004:

https://lao.ca.gov/ballot/2004/58_03_2004.htm

The Feds could just pay people to stay home for 2 months. Essential workers could work in shifts or something fair in addition to getting the "stay home pay". The UK is doing that, Europe is doing that.. It's not hard. Just pause and then restart.

We shouldn't let rich billionaires and well to do Senators or even the President push back and say that we should reopen because they screwed up.

UBI will lead to a better economy anyway.

The Feds are not some separate entity from the people of the US.

Federal money comes from the same place as state money.

Well, technically speaking, the federal government has the ability to create money. The states do not.

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