Sunday, May 10, 2020

The Revenge Of Austerity Hysteria

Trump's COVID-19 incompetence forced California to shut down, and now the state has gone from a $16 billion surplus to a $54 billion hole in just two months.  It's not a rainy day, it's a typhoon.

California faces a $54.3 billion deficit as the coronavirus pandemic hammers the economy, the state's worst budget gap since the Great Recession, state finance officials said Thursday.

The shortfall is almost 37 percent of the current $147.8 billion general fund budget and foretells widespread program cuts absent a federal bailout. K-12 schools and community colleges stand to lose $18 billion alone and are clamoring for money to adapt campuses to a new social distancing reality.
The Department of Finance released its projections in a rare fiscal update a week before Gov. Gavin Newsom is expected to roll out his May budget revision, his first post-coronavirus spending plan. The deficit projection extends to the remainder of this fiscal year and through the 2020-21 period that starts July 1.

Newsom said Wednesday that he expects a prolonged economic downturn. The Finance document suggests that income losses will be far deeper than during the Great Recession more than a decade ago.

“It’s going to take longer than I think a lot of people think,” Newsom said.

"We’ve never experienced anything like this in our lifetime,” he said, adding that the national unemployment rate will soar to “Depression-era numbers.”

The bulk of the deficit comes from a projected $41.2 billion revenue decline over the next 14 months, a drop from the ebullient outlook the state had just four months earlier, according to the Department of Finance. Forecasters believe the state's big three tax sources — personal income, sales and corporations — will plunge about 25 percent.

As usually happens in a recession, the state will likely see soaring demand for health and human services programs, adding $7.1 billion in costs, the Finance Department said. California can expect to spend $6 billion on other new expenditures, most related to the coronavirus response.

The numbers are staggering, but they can be viewed with a grain of salt. No fiscal forecaster has a confident handle on how the next year — let alone the next several years — will play out, because so much depends on how Covid-19 affects economic activity. The virus is unpredictable, as are the health care and government responses.

While Newsom sees a long downturn, some economists believe a V-shaped rebound is possible after a painful year.

California budget experts say it is likely the Legislature will have to build in contingencies, such as trigger cuts, in case the revenue decline worsens. The Legislature might have to rewrite the budget at least once in the fiscal year, as happened in 2008-09 during the last recession.

The new forecast marks a stark reversal for a state that had been riding high on surpluses and growing reserves in recent years, building confidence before Covid-19 that California might have recession-proofed itself.

The state can count on roughly $16 billion in savings to buffer the deficit impacts — much more than other states — but the budget gap is still nearly three-and-a-half times the size of that rainy day stockpile, Finance points out.

The $54.3 billion estimate is far higher than the roughly $35 billion figure that Legislative Analyst Gabriel Petek presented to lawmakers in April. Still, the new projection nominally falls below the roughly $60 billion gap the state dealt with in 2009 in two separate budget actions. And as a percentage of the state general fund, the new deficit is still smaller than the one the state faced that year.

This is frankly a rosy outlook.  I think it's going to be tens of billions of dollars worse than predicted because revenues are not going to recover until there's a vaccine, and that could take a year, 18 months, maybe more.  Systemic economic effects as the Trump Depression spreads will multiply the revenue losses.

A housing crash on top of everything else -- almost expected at this point and I don't understand why people aren't admitting it will happen -- plus long-term unemployment for millions of Californians, will knock the blocks out from under states.

Trump won't lift a finger to help, either.  There's no "Phase 4" bill coming.  Not to help states, which will need at least a half-trillion to stave off massive cuts and that's just for starters. And for the rest of us, Trump and the GOP will finally get what they've been looking to get for decades now: massive cuts to Social Security, Medicare, and Medicaid.

Senior Trump administration officials are growing increasingly wary of the massive federal spending to combat the economic downturn and are considering ways to limit the impact of future stimulus efforts on the national debt, according to six administration officials and four external advisers familiar with the matter.

While no one in the administration is advocating immediate cuts, the unease among senior Trump advisers about federal spending comes as the White House halts talks with Congress on additional emergency measures to rescue a U.S. economy facing its worst crisis in generations.

Some White House officials have gone as far as exploring policies such as automatic spending cuts as the economy improves, or prepaying Social Security benefits to workers before they become eligible, although these measures are unlikely to advance given the political stakes, said these officials and advisers, who spoke on the condition of anonymity because of the sensitivity of internal deliberations.

The concerns about the deficit are coming from traditional conservatives at the White House, including new chief of staff Mark Meadows and acting budget director Russ Vought. But officials say they are likely to face much more skepticism from President Trump himself. Trump has shown little interest since becoming president in shrinking the deficit and has so far stood firm on his campaign pledge not to alter Social Security.

It’s unclear how hard conservatives will push Trump on the deficit. As the novel coronavirus crisis has intensified, Trump has cut deals with congressional Democrats that largely ignored the impact on the federal debt, approving more than $2 trillion in spending already.

Trump doesn't want to lose so some spending has already happened (most of it to the rich, mind you), but congressional Republicans are clearly betting on saddling Joe Biden with a deficit so large that it guarantees Biden will have to be the axe man in the future.

We'll see what happens, but the worse this gets, the less I see any help to the states coming.

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