The California Tax Man Holdeth

If you were expecting a tax refund in California, you're going to have to wait a while longer. The state is essentially out of money and can't cover the tab to return your money to you.

Controller John Chiang said Friday he must delay $3.7 billion in payments next month because lawmakers have failed to address California's growing deficit.

With a $41.6 billion shortfall over the next year-and-a-half, the state is on the brink of issuing IOUs.

Chiang says his office must continue education and debt payments but will defer money for tax refunds, student aid, social services and mental health programs.

A severe drop in revenue has left the state's main bank account depleted. The state had been relying on borrowing from special funds and Wall Street investors; those options are no longer available.

California's profligate spending has created the conditions for a massive deficit when revenues fall short - when Wall Street and business suffers. There's no one to take up the slack in revenues, so the state faces a massive deficit.

California hopes for a federal bailout, which might balance the budget this year, but does nothing to alleviate the long term structural deficit which caused the current problems. Excessive spending is to blame for the current mess, not a lack of revenues. Spending has been out of control in California, just as surely as it has been in New York and New Jersey, which aren't far behind in the budget mess. None of these states will take the actions necessary to correct the fundamental problems with their respective state budgets, and will instead offer up cheap platitudes and claims that they are being fiscally responsible by not increasing the upcoming fiscal year budgets by as much as they had previously intended. Note that these states will increase spending when they don't have the revenues coming in.

Taxpayers will end up bearing the brunt of the mess as always. Should the federal government bail out California or any of the other fiscally irresponsible states, taxpayers from those states who controlled spending will be subsidizing the bad habits of others and the lessons will not be learned.