California Cash Crisis to Cause Budget Defaults
Written by Chriss W. Street
Gov. Newsom issued 30-day notice to announce that with California in a cash crisis; schools, counties, citiesand state agencies “should have no expectation of full funding.” This is gov-speak for we are about to default.
The process known as issuing a “Budget Letter” came just 13 days after Newsom claimed in his January 10 budget proposal for the coming 2025-26 fiscal year beginning on July 1st, that the budget “is balanced and reflects minor revenue growth over the three-year budget window.”
At the time, Newsom was indicating the total economic losses from the Los Angeles wildfires would be a manageable $10 billion, with insurance covering $2 billion of property losses and state losing $1 billion in taxes.
The Mountain Top Times (MTT) reported on January 15th that reinsurance consultants were predicting the ongoing wildfire losses would set a global record of $200 billion, and insurance losses had spiked to $25 billion.
Additionally, the state-sponsored FAIR Plan insurer-of-last resort was insolvent with $3 billion of assets to cover $8 billion of claims. With Fair Plan allowed to push losses to every insured property holder, MTT warned every insured property in California was at risk for a $5,200 assessment.
Verisk’s Extreme Event Solutions on January 22ndupped the reinsurers’ estimates of wildfire totaleconomic losses to $275 billion. With Palisades and Eaton Fire insured losses of between $28 to $35 billion, every insured homeowner is would now be at risk of a $7,300 assessment.
With $275 billion in total economic losses and 9 firesstill burning, the State of California tax and revenue losses this year could be over $20 billion.
The Palisades coastline and foothills of Altadena were populated with the same type of wealthy millennials that have been leading the out-migration from California. With out-migration reducing state tax collection by $6 billion this year, the fires will drastically increase out-migration tax losses.
With the Trump Administration initiating a federal extension for California wildfire victims, the state must postpone 2024 tax return filing and payments until October 15, 2025. That delay will cut cash by $30billion.
The new “Budget Letter” states that Gov. Newsom’s Department of Finance intends to drastically reduce mandatory spending based on K-12 class enrollments, MediCal caseloads, and local population revenue sharing.
California by April will have a $40 billion deficit. Gov. Newsom might like to cut spending, but the state Constitution has been amended 524 times to mostly lock-in spending for powerful money interests.
President Biden in his final days granted California an unusual advance of emergency federal aid to immediately begin to pay the 75% maximum for fire management and debris removal over the next 180 days.
President Trump visited North Carolina on Friday to encourage recovery from storm damage recovery and is scheduled to arrive in Los Angeles on Saturday. Trump has stated California does not deserve a disaster bailout, because Newsom refused to build new dams and water infrastructure.
Gov. Newsom before the wildfires had lobbied the legislature for $50 million for litigation to relentlessly resist Trump 47 policies. But he now intends to be standing by on the tarmac at LAX to meet Air Force One, despite not being officially invited
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Just to be absolutely sure that they destroy the state , Newsome and the lockstep Democrat legislature just enacted new laws to insure that future fires were even worse.
By way of background I grew up close by the Pacific Palisades and our family lost their home in the first of the major fires around 50 years ago. At that time most of the housing in the Pacific Palisades were small 2-3 bedroom, single story homes on small lots.
As Brentwood and Bel Air became fully built out more affluent folks moved to the Palisades. Homes were expanded or replaced with much larger, often two story homes. On small lots privacy was compromised so the obvious solution was to plant trees and large shrubs.
While the wind was a major factor in the spread of the fire the density of homes and abundance of trees greatly accelerated the fire. Most of us saw the desperate conditions where fleeing residents had to abandon their cars as the fire was moving faster than traffic. The firefighters then had to use bulldozers to push Mercedes and other luxury cars off the road to make way for fire equipment.
Ironically the California legislature had passed a bill prior to the fire which will greatly worsen the risk to residents. The new legislation would allow further conversion of garages to dwelling units, construction of additional residential units on the small lots without the right of Cities and Counties to conduct serious reviews or utilities to receive additional fees to help construct the needed increases in capacity. The owner original single family lot can thus add one additional house and convert the parking garage to a dwelling unit. All the cars will be left to park on the street.
No evaluation of the Environmental Impact is allowed. Concerned citizens will not be allowed to be heard or to appeal the decisions .
I think LA needs to pick themselves up by their bootstraps as did the hurricane states, and help themselves, and forget newsom. The state is still being shaken and exposed for wrong and selfish spending decisions. The state shouldn't be given any funds after claiming "sanctuary", and spending our taxes on illegals. I hope the state doesn't get a penny of "relief". Also, the president is considering dissolving FEMA, returning responsibility to the states. Good idea.