California: The GDP, Budgetary Woes, And Resistance To Austerity Of A PIIGS Nation

California Governor Jerry Brown announced last Saturday that his state's annual budget deficit had grown to $16 billion, nearly twice what he projected when he released his initial budget proposal in January. Governor Brown released yesterday his revised budget, which includes what the mainstream media are calling "deep cuts" to address the country's most populous state's unprecedented budget shortfall.

One oft-cited example of Governor Brown's proposed "deep cuts" is a 5% reduction in payroll costs. While a 5% cut may sound like aggressive belt tightening, we must remember that we're talking about California, where state employees' compensation packages are so overly-generous that teachers can earn up to $125K+ per year (.pdf) in salary and benefits and retire with pension having put in just 20 years of service (.pdf). The proposed 5% reduction in payroll costs is woefully insufficient given California state employees' stratospheric compensation packages, and the manner in which the Governor proposes to attain the 5% savings--cutting the number of hours worked--does nothing to address state employees' unrealistic salaries. California government workers made in 2010 an average of $65,640, the highest of any state (.pdf) and 32% higher than the national average.

Governor Brown's anemic payroll cost reduction plan should be of concern to every American. California, whose fiscal woes rival those of the PIIGS nations, has an economy larger than any of the PIIGS nations, with the exception of Italy. In terms of GDP and fiscal woes, California is to the U.S. what Spain is to the Eurozone. California, unlike Spain, however, cannot be forced out of its currency union should it become insolvent. Thus, unless Governor Brown makes real "deep cuts" such as across-the-board reductions in salaries, there will soon come a day when the cash-strapped Federal Government must consider bailing out the Golden State, whose debt currently stands at $362 billion and whose unfunded liabilities stand at more than $612 billion.