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Tad DeHaven GLENN: So how do you solve this? What is it that we are supposed to be doing? Tad DeHaven, he is a state government fiscal expert. Until recently he was a right-hand budget man in Indiana. He's now with the Cato Institute and he's with us now. Tad, how are you, sir?
DeHAVEN: I'm doing good, Glenn, how about you?
GLENN: Can you answer that question for me? How am I supposed to feel about sending my money now to California because they can't do it? How is this right for the rest of the country to bail these states out?
DeHAVEN: It's not right. And to quote a California taxpayer, she said I feel like I've been robbed, I feel like I've been robbed, and that's exactly what's going on. When the economy is good and revenues are flush, state governments always spend out programs, add programs, add more state employees and then when inevitably the government hits a downturn, then they look to the congress to bail them out.
GLENN: So what should California -- well, first of all, Tad, can you give me any idea? I talked to Meg Whitman the other day and she said to me, as California goes, so goes the nation. And I think there's two sides to that, two stories on that. One, we're following now the California budget path. What we're doing now California has already done, and you see where that leads. Now we're doing it as a nation, except we're not going -- we don't have a budget stop. We just keep printing money. So we just devalue our money until we can't -- until it's worthless.
But the other side of that is if California, being the eighth largest economy in the country, fails, what does that mean to the rest of the country?
DeHAVEN: Well, I think what it means is that we have too much dependency at the state level upon Washington. I mean, the 50 states are separate for a reason, and our Constitution established the separation between the powers the federal government has and the state government has. And over the last, you know, 40, 50 years, it's become this tangled mess where the states don't have responsibility, they look to the federal politicians who are irresponsible with the money to begin with and so there's no accountability. And quite frankly, Glenn, there's a lack of incentive on the part of state taxpayers to actually pay attention to what's going on in their capitals.
GLENN: So should the average person be calling? Like I saw Bobby Jindal. I'm trying to get a hold of him. Dan, have you gotten ahold of Bobby Jindal yet? Can you see if you can get a hold of him? He's the governor of New Orleans -- I mean of Louisiana, which I'm sure you know, but he came out today and he said he's not sure Louisiana's going to take any of this state money. Now, he'll -- or this government money. He'll, of course, be called a horrible individual and he just hates black people, I guess, because of New Orleans and that was one of the things that Barack Obama said that, you know, they wanted to make sure that New Orleans was taken care of. But shouldn't states now, shouldn't we be calling our state governors and say, "Don't you dare take a time of this bailout money?"
DeHAVEN: Absolutely. And actually Governor Mark Sanford of South Carolina's really been out in front of this issue and actually do you know that congress went in and put a provision into that so-called stimulus debt bond that said if the governor doesn't spend this money, basically the legislature can go in and spend it how they see fit instead. So not only do you have to call your governor but you'll have to call your state congress as well.
GLENN: Hold it just a second. The federal government wrote in that they can bypass the governor?
DeHAVEN: Yes.
GLENN: How the hell do they get away with that?
DeHAVEN: Well, they get away with everything else, Glenn.
GLENN: I mean, I can't believe it. Everything that we're doing, they are just peeing all over our Constitution. How is that even legal?
DeHAVEN: Well, Glenn, it gets worse. I've talked to some folks back in the state. I work in the budget office and they were looking for some, you know, taxpayer-friendly ideas that if we get this money and we have to spend it, let's do it in a taxpayer-friendly way. But congress wrote in so many restrictions on how the states get this money and use it that they are basically forced to spend it on -- they actually put a provision in that you can't cut back on Medicaid services because some states, including Minnesota, were looking to cut back on Medicaid. But they wrote it into the bill that you get this money, you can't do that.
GLENN: They also wrote in that you can reject anyone that's nonunion to be involved in any of these programs. So you have to have -- you know, the bids go out, but the state can say, "No, if you're not union, you can't bid."
DeHAVEN: Sure. And all that's going to do is make this more costly and a greater cost burden on our taxpayers. And let's get into the union thing. I got a good kick out of your joke, but they are talking in California about 20,000 workers about to be laid off. 20,000 workers; oh, this is horrible. California state government has 2.5 million employees. 20,000 isn't even a rounding error at that figure.
GLENN: Okay, listen. Tad, how can California and Kansas look their people in the eye and say, "Hey, I know you overpaid on your income tax and, you know, you trusted us to be able to give that back to you, and we will, but here's an IOU." Are they getting penalized for that, or can we go and put liens on the state capitol?
DeHAVEN: You actually raise a great question, and the situation is appalling. But I was wondering myself, what would happen if California businesses and taxpayers, they up their taxes for the year and they owe California. What would happen to all these folks if they sent in to Sacramento a little note saying, "You know what, I need money for other things right now, times are tough; so I'll get the money to you later." They would be fined, they would be put in jail and possibly even worse.
GLENN: You know what? I would like to see somebody start that experiment. I would really like to see somebody that says, "You know what? I and my neighbors are going to say, because we've lost our job, we can't afford the house we're living in, we can't afford this and that, we have overspent even." Yes, civil disobedience. Why not? If they can do it, what part of America am I missing now that they can live under different rules? What do you think, is the state, does the state have to pay interest or any kind of fine if they are sending you an IOU? Do you know that at all, tad?
DeHAVEN: No, I do not because this is kind of a rather unprecedented move, or it hasn't happened in many, many years. So I would like to think there's interest but who knows. I doubt it given they are willing to go this far.
GLENN: Okay. So the Republicans in California are getting the hammer laid down on them because they won't pass this budget even though there's another $11 billion in borrowing, et cetera, et cetera. I guess if I were a member of the assembly, I would say, "Okay, I'll only vote for this if you put in strict spending limits that we are reversing this." But then I find out that they've already had this. What was it, the Gann amendment or something? They've already had really Draconian rules in there that said there are strict limits, and they never paid attention to them. Is that right?
DeHAVEN: Well, the Gann limit was instituted in 1979 back at the time we had Prop 13 and the property tax revolt, and it did. It capped, it put a limit on Sacramento ability to spend money and actually as a result if you look from 1980 to 1991, California's rank in per capita state expenditures fell from 7 to 16, but the government education complex didn't appreciate that, the transportation folks didn't appreciate that and so eventually the Gann limit's been watered down to the point where it, obviously it's virtually meaningless.
GLENN: So what -- how are you going to solve this problem when one of your biggest problems is education and healthcare and unions? How can you possibly solve your problem here?
DeHAVEN: Well, it's going to be very difficult, but I agree with what you said. I think if you're a Republican holdout, there's got to be a tremendous amount of pressure, then I think you're in a position now to demand something. And Sacramento's proved itself incapable of managing its budget. It's a poster child for the rest of the states on how not to do things, whether it's debt or taxes or spending. And so there must be strict, strict, strict statutory input into the California constitution limiting their ability to either take in revenues or spend money or both.
GLENN: You know what, I think they would be able to sell their bonds if people did that. If people saw that they were getting serious about it, you'd probably be able to sell California bonds at that point. Tad, thank you very much. I appreciate it. We'll talk again.
DeHAVEN: Thank you.
GLENN: You bet.