Tough Love For California

Floor Speech

Mr. McCLINTOCK. Mr. Speaker, the Governor of my home State of California has called for the Federal Government to underwrite as much as $15 billion of revenue anticipation notes that the State has to issue to avoid bankruptcy. I think that would be a colossal mistake. Such an act would not only put at risk billions of dollars that our country cannot afford, it would actually make California's fiscal condition worse.

Today, California faces a paradox. Despite record levels of spending and record levels of borrowing, it can no longer produce a decent road system or educate its kids or lock up its prisoners. Those who blame the recession for California's budget crisis profoundly misunderstand the nature of that crisis.

Even before California's revenue began to shrink, the State government was running a chronic $10 billion deficit and piling up unprecedented debt. The recession was merely the catalyst. The underlying cause is rampant mismanagement of the State's resources.

California spends about $43,000 to house a prisoner per year, while many States spend just half of that. California spends over $11,000 per pupil, but only a fraction of that ever reaches the classroom. California has one of the most expensive welfare systems in the country, and yet one of the worst records in moving people off of welfare.

That has never seemed to bother California's legislature or its Governor. They are like the shopkeeper who leased out too much space, ordered too much inventory, hired too many people and paid them too much. Every moment that shopkeeper covers his shortfalls with borrowing and bookkeeping tricks.

Ultimately he is going to reach a tipping point, where anything he does makes the situation worse. Borrowing costs are eating him alive and he is running out of credit. Raising prices causes his sales to decline and there is only so much discretionary spending that he can cut.

That is California's predicament in a nutshell. California's borrowing costs now exceed the budget of the entire University of California, and the reason for their loan guarantees is their credit is exhausted. They have just imposed the biggest tax increase by any State in American history, and it has actually reduced their revenues and made the budget gap wider.

Although there are many obsolete, duplicative or low-priority programs and expenditures that the State can and should abolish, there aren't enough of them to come anywhere close to closing California's deficit without directly impacting basic services.

Sadly, California has reached the terminal stage of a bureaucratic state, where government has become so large and so tangled that it can no longer perform even basic functions, a warning to all of us here in this House, I might add. Simply stated, there is now no substitute for a fundamental restructuring of the State's major service delivery systems and restoring the efficiencies that once produced a far higher level of service at far lower costs than what we see today.

Now, restoring that efficiency is going to require the Governor and the legislature to wrest control from the public employee unions, to dismantle the enormous bureaucracies that have grown up over the service delivery system, and to decentralize administration and decisionmaking, to contract out services that the private sector can provide more efficiently, to rescind the recent tax increases that are actually costing the State money, and to roll back the regulatory obstacles to productive enterprise.

These are the changes that cannot be implemented overnight and that will not begin to produce results for some time, and that brings us to the fine point of the matter. What Churchill called history's ``chilling words'' are about to be pronounced on California's failed leadership: Too late.

The Federal loan guarantee or bailout may be the only way to buy time for the restructuring of California's bureaucracies to take effect, but the discussion remains academic until and unless the State actually adopts the replacement structures, actually unburdens its shrinking productive sector and presents a credible plan to redeem the State's crushing debt and looming obligations. Without these actions, Federal intervention will only make California's problems worse by postponing reform, continuing unsustainable spending and piling up still more debt that the State cannot redeem.

In short, if California won't help itself, the Federal Government cannot and it should not and it must not.

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