So, the chickens come home to roost after all.
State Controller John Chiang has announced that the state government is about to run out of money. That's because revenue is about $2.5 below projections. Meanwhile, California has immediate obligations to state universities, county governments, and Medi-Cal--but no money to make those payments.
In the words of Rick Perry, "Oops."
Of course, there's a monumental difference. Perry's infamous "oops" came with his inability to recall a federal agency. The "oops" here stems from the governor and legislature ignoring the facts. On the culpability scale, it would seem that California's "oops" is palpably more unconscionable than Perry's.
Chiang has been steadfast in his monthly reports, carefully pointing out the growing gap each time. Yet, for the most part, his words have fallen on deaf ears.
Suddenly, all the rosy assumptions about closing the revenue gap have fallen apart. And with five months remaining in the current fiscal year, the state finds itself in a world of hurt.
Now what are the recipient government entities supposed to do?
U.S. & World
No doubt, more financial sleight of hand will occur. In most cases, they will borrow the money to make up the difference until they can be paid. But all that will come at a cost in the form of interest and a more unbalanced state budget down the road.
The bottom line is that the state is walking a finance tightrope without a net. And the current misstep only adds to our propensity for a major fall.
Look out below.
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