Definitely Going Broke

In his speech today, Governor Arnold Schwarzenegger told Californians that “our wallet is empty”.

Our wallet is empty. Our bank is closed. Our credit is dried up.

I know for many of you, these will be the hardest votes you will ever make.

But the people sent us here to lead not only in times of prosperity but also in times of crisis.

We must make these cuts and live within our means, because what is the alternative.

If we don’t act, the state will simply run out of money and go insolvent.

We are not Washington. We cannot print money. We cannot run up trillion-dollar deficits. We can only spend what we have.

So many programs are included in his speech. Money to students, money to non-profits, money to programs are all being cut in a hope to be able to function in a time of crisis. It’s a very scary time here in California.

As it is, unemployment is short by “billions”, though thankfully, those collecting benefits are safe for now.

This latest fiscal crisis won’t immediately affect the 1.1 million Californians now collecting benefits because the state is using an interest-free federal loan to cover their checks…To rebalance the system and pay back the federal loan, lawmakers must raise payroll taxes on employers, reduce benefits for recipients, or both.

In 2009 and 2010, the state expects to pay out $29 billion in benefits. It will collect just $11 billion. Counting the small positive balance that was in the fund at the end of 2008, the result is a $17.8 billion deficit at the end of 2010.

Essentially, UI is paid to the state on a per employee basis. When a company reduces it’s payroll, the tax paid to the state is also reduced, hence the shortfall. One way to try and recoup those losses is to increase payroll taxes, something the Governor proposed in November 2008:

The governor proposed to make employers pay an additional $56 to $417 per worker per year starting in 2010. He also wanted to cut jobless benefits from $1 to $44 per week starting in 2010.

When Schwarzenegger made that proposal, the state expected a $4.9 billion deficit in 2010. The rapid rise in unemployment since then has more than tripled the expected shortfall. Now the Republican governor’s proposal awaits action in a Legislature preoccupied with more pressing budget issues while the governor looks for the political support and the right mix of policies to restore the unemployment fund to solvency.

While I was very upset about the recent decision regarding same sex marriages, California is still my home. I hope we get through this okay.