California ain't got the do re mi: Will Americans bail out the Golden State?

California is a garden of Eden, a paradise to live in or see;

But believe it or not, you won't find it so hot
If you ain't got the do re mi.

Woodie Guthrie

Just a few months ago, the California economy appeared to be in great shape. Governor Gavin Newsom predicted a $7 billion budget surplus for 2020, and the state had $16 billion in its rainy day fund.  

The governor was feeling so confident that he promised to distribute $75 million to the state's illegal residents.  Very thoughtful. But after all, what's $75 million to California, the world's fifth-largest economy?

But then COVID-19 came along like a drunken ex-spouse at your wedding reception, and the Golden State's economy began heading south.

Today, Governor Newsom projects a $54 billion budget deficit--more than three times the amount of the state's rainy day fund.  California has 4.2 million unemployed workers and huge healthcare expenses connected with the coronavirus. One in three Californians (13 million) are on Medicaid and can't pay their own medical bills.

And of course, California's financial problems are more severe than this year's budget deficit. According to the California Policy Center,California's state and local liabilities total $1.5 trillion.  

A lot of California's debt can be traced to high salaries paid to the state's civil servants and unfunded pension obligations to government workers.  California's public employees (professors, school administrators, hospital administrators, etc.) are paid well. In fact, about one-third of a million government employees draw salaries of $100,000 or more.  Over 1,400 of them are paid more than Governor Newsom.

California's state and local employees also enjoy great retirement plans. Some retired school administrators draw pensions of more than $300,000 a year.

California desperately needs a federal bailout to keep essential services going and to pay thousands of overpaid public workers. Indeed, Governor Newsom said he is optimistic about the state's economic future but, "My optimism is conditioned on this--more federal support." 

Hence, Nancy Pelosi's $3 trillion HEROES Act, which, if passed, will shower more than $1 trillion of federal money to distressed state and local governments.  If the Senate votes to approve Pelosi's bill, lots of federal money will arrive in California.

But there's just one problem with the HEROES Act. The national debt already tops $25 trillion. Pelosi's legislation will add another $3 trillion to that number.

So if the federal government bails out California, taxpayers in Kansas, Ohio, and Oklahoma will help pay the tab for those quarter-of-a-million dollar California pension benefits. The citizens of the Midwest will help fund the princely salaries of California's college professors and school superintendents.  

As Woodie Guthrie observed nearly 100 years ago, California is a garden of Eden and a beautiful place to call home. But the state's dwindling middle class is going to find that California is not so hot if you ain't got the do re mi to pay for a whole lot of high living by people who call themselves public servants.

But Governor Newsom, we ain't got the do re mi!

HEROES bill dishes out thin gruel for student-loan debtors: "Please, sir, I want some more."

In its original form, the HEROES bill was 1,800 pages long; and I am grateful to Steve Rhode of Get Out of Debt Guy for summarizing its essential elements.  The original legislation provided up to $10,000 in student-loan relief for borrowers holding federal or private loans.

By the time the House of Representatives approved the HEROES Act in mid-May, relief for student debtors was watered down considerably. As Mark Kantrowitz reported, the bill that was approved by the House limits relief to "economically distressed borrowers."

Who are the economically distressed borrowers? Mostly these benefits will go to people who are:

• in default on their loans or whose monthly payments are more than 90 days overdue,
• People with economic hardship deferments, cancer treatment deferments, or unemployment deferments,
• People whose loans are in forbearance and whose debt burden exceeds 20 percent of the borrower's income.

The HEROES Act was thin gruel when it was first introduced, but the gruel got even thinner by the time the House of Representatives passed it by a vote of 208 to 199.

Forty-five million Americans are burdened with federal student loans totaling $1.6 trillion, and private-loan borrowers owe about 125 billion. That's a lot of debt, and the HEROES Act offers only a few crumbs of relief.

Assuming the Senate approves the HEROES Act in its present form (which is not likely), most of this money will do nothing more than pay down the interest on borrowers' student-loan balances. People in income-driven repayment plans are seeing their debt grow larger with each passing month due to accruing interest. People whose student loans are in deferment or forbearance are not making their monthly loan payments, but interest is accruing on their loan balances as well.

In short, the HEROES Act is an insult to the millions of people who are being dragged down by unmanageable student loans. Like Oliver Twist, all 45 million student-loan borrowers should shout, "Please, sir, I want some more."

Please, sir, I want some more.