We're 45 days into a California budget standoff, and the drama involved is a bit like watching the film "Terminator", except Arnold Schwarzenegger probably sees himself as Sarah Connor and the Democrat-controlled legislature is the robot bent on destruction.
It's bad, they say.
In a "normal" year, California would cover its massive $15 billion dollar budget deficit with bonds--the state equivalent of printing money. But California's credit rating is shot, and UC Irvine business professor Peter Navarro says, "You gotta have revenues to pay the bonds, and we don't have the revenues."
Navarro is one of about 200,000 state employees who will see wages slashed to the federal minimum of $6.55 an hour, if the Governor gets his way. With money running out, Gov. Schwarzenegger has already fired 10,000 temporary state workers, and he's ordered the salary cut for nearly 200,000 "non crucial" full-time employees to minimum wage until a budget is passed. After that, staff workers will get reimbursed for lost wages. When I asked Navarro how bad things are, he held up a sign that said, "Will teach for food."
However, the salaries haven't been cut yet. The state controller--a Democrat--is refusing to follow the Governor's order, saying the state has enough money to keep paying in full through the beginning of October.
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Why should you care? Well, Prof. Navarro seems to think that California's pain will eventually be everyone's pain (we like to think this out here, it makes us feel important). But there may be some truth to it. California's housing crisis has already rippled through the financial system, and if 200,000 state workers suddenly have trouble making their mortgages, or if California falls into a recession, that's not good for anybody.
Governor Schwarzenegger came to power vowing not to raise taxes, but with the idea of floating bonds seemingly out of the question--and Democrats unwilling to make the deep cuts necessary to balance the budget--a temporary sales tax hike is now reportedly on the table.
But there's no deal yet, and until there is one, the Governor is refusing to sign any legislation not related to the budget. Prof. Navarro says California has managed to act as a sovereign nation all these years in financing deficit spending through bonds, and the state is now paying the price. "I mean it's kabuki theater to me," he says.
Watch the video clip for more of the Navarro interview.