You can stop worrying about California's budget crisis...
According to today's Washington Post, the Obama Administration is waiting in the wings to bailout the Golden State should the current legislative impasse genuinely imperil California's economic condition. Obamanon & Co. fear that we could drag the rest of the nation down into recessionary oblivion should we actually impose steep budget cuts.
The money quote is below...
"The administration is worried that California will enact massive cuts to close its deficit...aggravating the state's recession and further dragging down the national economy."
"After a sereis of meetings, Treasury Secretary Timothy F. Geithner, top White House economists, Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout."
"These policymakers continue to watch the situation closely and do not rule out helping the state if its situation significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions."
So there you have it...Obamanon is clearly leaving the door open for a federal infusion of cash to forestall significant cuts in California's welfare state. They see California's economy as inextricably intertwined with the health of the overall economy, and their own political fortunes. It is in Obama's most intimate political interest to bailout California, and he just tipped his hand in a big way.
Knowing that, why would California's Democratic state legislators agree to any spending cuts? Why would the state's Republican legislators agree to any tax hikes? Just hunker down and wait for the state's economic situation to get so bad that Obama will rush in with aid.
What will be interesting to see is if Obama tries to use the Golden State's fiscal desperation to leverage major political changes in state government, namely, the evisceration of Proposition 13. Will state Republicans revolt and refuse federal rather than give up their minority control of the state budget process? What if Obama says that in exchange for federal aid, California has to give up its two-thirds majority legislative approval requirement for every state budget?
What we do know is that there is no incentive for the California Legislature to pass a budget. In the final analysis, Obama will do for California what he has done for the car companies...bailout with strings...the federalization of California's budget process looms...
