Brad DeLong's Semi-Daily Journal (2004)

The casinos take $1B loan, give that $1B to the state and repay the loan over time. So what exactly is the problem?

None, if all you need is $1B this year to meet an immediate crisis. In that case, it was a success.

But if this was supposed to help put California's budget on a sound footing over the long run, this didn't do jack.

Maybe one of the Californians out there can give us the prologue we're missing here. I'm an East Coaster, so I'm pretty ignorant of what the Governator promised about this deal.

RT: Cal's budget is in deficit for the long-term. I.e., this is more than an immediate crisis. The reason given by those who wanted to recall Gray Davis was that he was not solving this crisis (never mind the fact he was trying to cut spending and raise taxes). And Arnold did promise to impose a 25% tax on Indian gaming revenue, which is running about $6 billion a year. As far as I call tell, Arnold has managed to increase our deficit problem. Alas.

In other words, people seeing the headlines will think he delivered on 2/3 ($1 billion out of $1.5 billion per year) of his campaign promise, when in reality he's delivering less than 3% ($40 million out of $1.5 billion per year).

Journalists? Embarrassed?

Is the used-car guy embarrassed when he sells you some piece of crumpled tinfoil that's got a $49 paint job and a crankcase full of Vaseline for ONLY $17,999 on a 13% 6-year loan and you buy it because "the payments are nice and low"?

These J-school scum are embarrassed all the way to the bank.

There is also an annual payment (that Brad and other posters fail to mention) that looks to be significant and can grow over time depending on the number of slot machines the tribes install. Here's the quote from the LA Times.

"The cumulative size of the tribes' annual payments is unclear. At a briefing last week, senior administration officials, speaking on the condition that they not be named, pegged the annual payments at $275 million. On Monday, Schwarzenegger placed the payments at $150 million to $200 million, depending on the number of new slot machines installed by the signatories.

The governor's legal secretary, Peter Siggins, explained the difference as a math error.

"We were trying to pencil out at the time what we estimate those payments to be," Siggins said. "It was a very preliminary discussion and we have since had time to look at those numbers."

It does look like they initially sold the deal based on a bigger number, which may or may not have been a "math error," but a couple hundred million a year is nothing to sneeze at.

GAB -- that amount of money is bupkis next to what he promised, and what he acknowledged the state needs and should get from that source.

Eddie - it may be "bupkis" but it's not zero and it's more than we had before. There is also, I believe, the chance that it goes up.

And you touch on one of my favorite topics, the financial "disaster" in Calif. The problem is not structural, recurring or any of the other adjectives used in the recent past. In fact, it's my guess that the $7 billion FY 2004-05 deficit that we're concerned about will not happen. The US and Calif. economies are recovering and will cause state revenues to exceed forecast and will enable the Calif budget to be balanced.

The California economy is somewhere around the 5th to 7th (depending on exchange rates) biggest economy in the world. Gross state product (similar to GDP for a country) is about $1.4 trillion annually. A $5 to $7 to $10 billion deficit is rounding error in an economy that size.

Steady Eddie -- How much do you feel a state government, which provides no services on Indian lands, should collect from Indian gaming revenues? It's free dirty money, stop whining.

Harold, we have to avoid the word "tax," since state governments by law cannot collect taxes from tribal governments or enterprises run on tribal lands. The creative term is "revenue sharing" and avoids messy legal entanglements. Remember, when you pay a portion of your income to the government but receive no services in return, it's revenue sharing.

'Appreciate your sense of humor Jack -- the distinction between tax/ revenue sharing puts a smile on my face. Are you going to fix that "free dirty money" term too? I defer to your superior wit.

GAB - the CA deficit may be "rounding error" relative to the size of the state economy, but how does it stack up against (a) annual state revenues (since the size of the economy is irrelevant in the face of an anti-tax movement that says, "Hands Off!!"), and (b) the statutory balanced-budget requirement - you have one of those, right?

Looking at this from a distance, the question isn't "is that annual payment better than nothing?" but "are Ah-Nold's proposals working?" Seems that if part of his long-term solution was $1.5B/year from Indian casinos, and what he got was $1B this year, and nothing for the next 17 years, and a payment of a fraction of that for 12 years after that, CA needs to make that up somehow, either by growth of existing revenue streams, or by new taxes or budget cuts.

Let me answer #2 first. Yes, there is a balanced budget requirement. But the budget isn't balanced and hasn't been in a couple of years. So I ask rhetorically, how important is the requirement? And it's "projected" not actual. If you get to the end of the FY and the budget isn't in balance, so what?

#1. If the balanced budget requirement doesn't really matter (see above) then how important is the "deficit" vs revenue question? And if ultimately the budget must be balanced, what really matters is the ability to service debt - thus Gross State Product.

Arnold should fire his agent (the state's agent?). I thought Hollywood understood contract negotiations.

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