August, 2019, Part 1, By The Numbers: The Financial Abyss That is California

On a periodic basis we do some posts that fall under the theme of “by the numbers.” Rather than trust what the American political tells us about reality, we like to examine the real numbers and the real reality in the world to understand what is actually going on. Relying on politicians, and their cohorts in the media, to tell us what is reality is always a sucker bet. They have their own agendas and goals, usually centering around their needs and self-enrichment. So we need to look at the reality of the numbers to determine what is really going on.

Previous analyses of “by the numbers” can be accessed by entering the phrase in the search box above. We will do a few “by the numbers” posts this month where we look at the numbers to truly find out how good, not likely, or bad, most likely, the American political class is doing in managing our tax dollars, protecting our freedoms, and resolving major issues that affect all of us. 

1) We recently and often discussed the fact that the financial situation in California is not too bright. In fact, we have placed them in the group of states that are most likely to go bankrupt first, along with Illinois and New Jersey. While we think Illinois will go belly up first, a recent article on the Real Politics website by Victor Davis Hanson shows how bad the numbers, and risk, for the state of California really are:

• The 40 million state residents depend on only 1% of the state’s taxpayers to pay nearly half of the total state income tax stream.
• California has the highest marginal top tax rate in the country at 13.3%.
• If only 10% of these high earning state residents left the state because of the high tax burden, the state income tax revenue stream would drop a whopping 5% or so, if only 20% left the revenue stream would drop 10% or so.
• I could not find out how many taxpayers there are in California but I do know there are about 13 million households so let’s use that as a surrogate.
• 1% of 13 million households is 130,000 households which we will assume approximates the number of taxpayers paying 50% of the state’s income taxes. 
• Thus, if only 13,000 (10%) of those wealthy households leave the state, the state income tax revenue stream goes down 5%.
• Given the Trump tax cuts which maxes out certain Federal income tax deductions to $10,000, there is more and more advantages for the wealthy to leave the California because much of their high property taxes, high state income taxes, and high mortgage payments will no longer be deductible on their Federal income taxes.
• But the numbers are not just bad financially, consider this quality of life issue: “During the 2011-16 California drought, politicians and experts claimed that global warming had permanently altered the climate, and that snow and rain would become increasingly rare in California. As a result, long-planned low-elevation reservoirs, designed to store water during exceptionally wet years, were considered all but useless and thus were never built.”
• But as we have discussed, most climate forecasts are bogus and in 2016 and 2017 the state received record levels of rain and snow.
• But the state had no place to put the extra moisture and future water supply and thus, trillions and trillions of gallons of water washed out to the ocean, never to be stored or used again.
• This past February alone it is estimated that 18 trillion gallons of rain was not saved.
• Rather than build the needed reservoirs, the state’s politicians wasted $5 billion on a high speed rail line that will never exist since its cost escalated from $44 billion to projected $77 trillion before any track had been laid.
• 27% of the state’s residents were not born in this country as the state’s politicians welcome illegal immigrants into the state which has strained the budget and other services with a full one third of the Medicaid births in California being to illegal immigrants, putting additional financial strain on the state’s finances.
• One third of the country’s welfare recipients live in California and one in five state residents live below the poverty line.

Poverty, water shortage, wasteful spending, high taxes, a delicate and risky tax model, the numbers show that California is still a very likely candidate for government failure in the not too distant future.

2) A great site for numbers relative to the states is www.statedatalab.org. What it has to say after analyzing the California numbers is also not pretty [note: all numbers from the database are from fiscal year 2017, the most recent year that total results are available]:

• Every man, woman, and child in California, all 40 million of them, would have to send the state government a check for $22,000 in order to get the state out of its debt hole.
• Thus, a California of four would have to write a check for $88,000 to dig out of the hole.
• California has $100.1 billion in assets to pay its $369.9 billion in current and future bills.
• Thus, it has a financial shortfall of about $269.9 billion, a little over a quarter of a TRILLION dollars, giving it the designation as a “sinkhole state.”
• Due to accounting tricks, this $269.9 billion does not include another hidden $63.8 billion in pension and retiree healthcare liabilities.
• But the problem for California residents does not stop at the state government level.
• If you live in Los Angeles you would have to pay another $6,000, on top of the $22,000, to get the city out of its financial debt hole, bringing each resident’s debt burden in that city up to $28,000 to cover the overspending and wasteful spending of California’s state and local LA politicians.
• LA only has $12.7 billion in assets to cover its $20.4 billion in current and future liabilities.
• But this is pennies compared to San Francisco which has so much debt that its citizens would have to pony up a whopping $22,600 each to get that city out of its financial hole, meaning that each resident of San Francisco would have to put forth almost $50,000 each to bail out the state and local politicians’ financial mismanagement.

It is a great website if you love numbers, it is a scary website if you believe what the political class in California has done to the financial future of the state and local government finances, a reckoning that will have devastating impacts on the citizens of California. The numbers do not lie.

3) Let’s stay with the same database, numbers, and analyses and see what it has to say about our other two favored states to go bankrupt, Illinois and New Jersey:

• The state of Illinois is over $225 billion short when it comes to assets available to pay bills and costs likely to occur.
• This means that each man, woman,and child of the state of Illinois would have to pay a whopping $50,800 EACH to get the state out of its financial hole.
• This $225 billion shortfall does not include another $36 billion of liabilities in retiree health care costs that accounting tricks allow the state to hide.
• And the city of Chicago is also in bad financial shape and each resident of Chicago would have to pay another $38,100 to get the city out of its financial hole which means every man, woman, and child in Chicago would have to pay $88,900 to fix the financial mess that Illinois state and Chicago city politicians have created.
• But hold on, New Jersey is coming on strong since every man, woman, and child in that state would have to pay $61,400 each to get the state out of its financial debt hole, almost three times what a California resident would have to pay.
• This debt burden is almost 70% higher than it was just four years previous when the debt level per person was about $36,000 each, indicating that New Jersey politicians have been spending and incurring debt like drunken sailors over the past four years.

Wow, Illinois, New Jersey, California, it is a toss up what state will go bankrupt first and given these debt levels and debt burdens, they will go bankrupt, the numbers do not lie. 

To show you how bad the politicians mismanaged the financials in these states, let’s look at a few other random states debt burden to show that these three are likely the worst run operates of all fifty states:

• Florida individual debt burden: $1,800 per person.
• Georgia individual debt burden: $3,400 per person.
• Kansas individual debt burden: $7,600 per person.
• Iowa individual debt burden: $500 per person SURPLUS, i.e. the state of Iowa has enough money to cover its debt and give every citizen a $500 check.
• Montana individual debt burden: $3,300.

You get the idea, some state politicians know how to operate and budget much more efficiently and effectively than New Jersey, Illinois and California.

So given these numbers which state will go bankrupt first...or is there a dark horse candidate or two out there that might make it to the bankruptcy finish line ahead of these three lame financial horses?

More numbers to follow, including the abyss that is Baltimore and the missing hundreds of millions in New York City.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

https://www.amazon.com/Walter-Bruno-Korschek/e/B002KYU08Q/ref=dbs_a_mng_rwt_scns_share

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Please visit the following sites for freedom:


http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w