The Golden State Of Debt

California's about to tackle an $11.1 billion water bond for the state, but a closer look and some back-of-the-envelope calculations by the Sacramento Bee's Dan Walters show that the state's debt is pushing the $600 billion mark.

The latest annual pension report from the state controller covers 2006, when the unfunded liability was $64 billion. But since then, state and local pension funds have lost at least $150 billion on investments, so a reasonable estimate of today's unfunded liability is $200-plus billion. A state commission, meanwhile, says the state-local liability for retiree health care is about $100 billion.

No one keeps complete data on local government general obligation debt, but it appears to be roughly the same as the state's, perhaps $50 billion, plus several billion dollars in debt incurred by local redevelopment agencies.

There are tens of billions in specialized state debt, such as veteran home loan bonds, "securitization" of tobacco lawsuit proceeds, and budget deficit bonds.

The interest that must be paid on all that state and local debt is probably an additional $100 billion, so we're already talking about well over $500 billion.

Then there are the off-the-books debts incurred to paper over years of state budget deficits, such as speeding up tax collections that will have to be refunded later, postponing periodic payments to schools, making promises to schools about levels of future financing, borrowing money from special funds and taking local government funds that must be repaid later.

The state's unemployment insurance fund, meanwhile, is about $7 billion in the red, and that deficit is expected to more than double in the next year and quadruple by the end of 2011. The state has been borrowing from the federal government, but sooner or later it will have to repay the feds, probably by taxing employers.

Conservatively, then, California is probably more than $600 billion in debt. Perhaps we shouldn't sweat another $11.1 billion. Or perhaps it will be the straw that breaks our back.

Six.  Hundred.  Billion.  Just for the state of California.

The question is how are we going to bail out one-seventh of the country, and when?  The how, well who knows.  The when?  Well I'm thinking it's sooner rather than later.  Here's the trillion dollar question:  how much in the unfunded obligations are America's other 49 states pushing?  As long as real estate prices were going up, it wasn't a problem:  states would just borrow based on increased property tax numbers.  Now?

Well, now we're all about to get an ugly lesson.  And keep in mind California's trapped:  they can't raise taxes a single dime, so either they have to borrow more or cut everything they can.  The GOP wants to basically do the same to the rest of the country, to boot.  Ahnold's muffed it, folks.

California's problems are really just beginning.