2011 - The Year The States Go Bust

It's not looking good in California or many other states and it probably won't get better in 2011:

The budget crises that have nearly paralyzed states such as California and Illinois are likely to get worse — not better, in 2011 — despite the massive cuts that have already been made.

Kept on life support for the past two years by $160 billion in emergency funding from the stimulus package, state governments now face the prospect of making ends meet without any help. New Jersey Governor Chris Christie called the situation a “day of reckoning” in a recent interview with “60 Minutes” — and that’s after trimming a full quarter of his state’s budget in one year.

“State and local government employees and other special interests have been allowed to gorge themselves over the years at the expense of taxpayers,” Tad DeHaven of the CATO Institute told The Daily Caller via e-mail. “Their privileged status has been exposed by the economic downturn … I think that in the back of the minds of many state and local policymakers, they think they’ll get federal bailout of some sort.”

All signs from Washington, however, indicate that no bailouts will be forthcoming. Not only will the stimulus spigot be turned off, but the two-year Build America Bonds program is also shutting down, making debt more expensive for states and municipalities. “Hopefully, the end of [Build America Bonds] will inhibit the ability of states to borrow,” said DeHaven. “The states need fewer liabilities, not more.”

Yesterday I spent some time talking with Silvio Canto Jr. on his BlogTalkRadio show about the situation in California. You can listen to that discussion here.  Bottom line - California didn't do itself any favors by picking a governor who thinks extending tax hikes and taking away tax breaks for job creators will fix the problem.