Saturday, May 23, 2009

In the NYT: How Federal Assistance to California Should Work

I don't care for the headline the New York Times put on my May 22 piece suggesting why federal loan guarantees for California might be a good idea -- and explaining how they should work. It's not a "bailout" I'm proposing. California shouldn't receive any cash from the feds. The only cash in the deal will be the cash California sends Washington as a fee for the guarantees.

Boiled down, here's what I'm arguing. California is a big place that can't govern itself. In the short term, it has cash flow problems. The federal government can help California manage those cash flow problems -- at virtually zero risk and at no cost. So the feds should step in and help -- but use that leverage to force California to adopt a plan to fix its structural budget problems. The feds could force California to submit a plan as a condition of issuing the guarantee--and lock the plan in by making it part of the guarantee (and by including financial penalties if the state doesn't make its budget targets in the plan).

Will the feds do this? Right now, they say no, as they should. California doesn't run out of cash until July, and by refusing to help now, the feds keep the pressure on the legislature and governor to address the problem first. But I think it's a safe bet California leaders won't be able to resolve this, and the feds will have to offer the guarantees this summer.


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