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California to cut billions in Welfare and Healthcare

By: Steve Johnson

6/2/2009 - 13 Comments

Last week California Gov. Arnold Schwarzenegger proposed eliminating welfare for 500,000 families and terminating health coverage for nearly 1 million children to help close the state's ballooning budget deficit.

Also among the proposed cuts are stops to college fee assistance for thousands of students, fewer vocational training opportunities for state inmates and the elimination of $70 million in funds for the state parks – which would essentially close 220 state parks.

The state is trying to close a ballooning $21-24 billion deficit.

Schwarzenegger's previously proposed cuts include laying off 5,000 state government employees and cutting billions of dollars from K-12 schools, and shortening the school year by a week. The governor had warned of major cuts if voters defeated last week's ballot measures, which they did.

He said that "if we don't make those cuts, I think we will face catastrophic consequences because the state would simply run out of money and get insolvent, which we cannot afford to do."

Raising Taxes

The governor has said he would not support further tax hikes after agreeing to $12.8 billion in higher sales, personal income and vehicle taxes earlier this year.

If they raise tax any higher, more people will simply migrate to other states that have lower taxes.

Federal Bailout

Later in the week, the governor asked the Federal Government to co-sign their bonds so they can get lower interest rates – because the state’s credit rating is very low. But, if Obama were to come to the rescue and co-sign their bonds with Federal dollars it would only put the entire nations credit rating at further risk and California would put off making the necessary cuts that are needed for long-term recovery from the recession.

Also, if the Federal government bails out California, several other states will line up behind them looking for their bailout and it will be next to impossible for the Fed to deny them.  This would create a wave of state bailouts that would put the AAA credit rating of the entire nation at greater risk. 

As I wrote a few months ago, California is going to have to make drastic government cuts.

And now that the bond market is weakening and the dollar in sinking, there is little the Federal government can do in borrowing more money.  The only other option is to print the money and debase the dollar, which will solve the problem in the short run – but create massive inflation in the long run.

The best solution is for states to make the drastic cuts.  For the sake of the survival of the nation from financial collapse, Obama should not help the states.

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