Breaking Point: Taxes, Cuts or Bankruptcy

All across California, cities and counties are frantically scrambling to find new sources of revenue even as they look at ways of cutting public spending.-- and bankruptcy looms as the best alternative for some overburdened by debt.

The state government, paralyzed by political and philosophical conflict, remains at loggerheads over whether to triple vehicle license fees and increase the sales tax by nearly 20 percent or slash spending on public services.

Even as President-elect Barack Obama has inspired much of the nation with hope for real change, the federal government is bailing out banks, insurers and others with $700 billion and looking at spending a whole lot more to save the auto industry and stimulate the economy with massive public works spending, aid to states and local government and tax cuts to ordinary folks.

It's a case of irreconcilable differences, a zero sum game that defies all logic.

Pump up the economy by printing money to put more cash in the hands of consumers, distressed businesses and failing government agencies -- and then take it away at the local and state level by raising taxes and cutting spending.

There's a lot wrong with this picture and the contradictions only add to the worries and loss of confidence of average people who have seen their 401k nest eggs and their homes lose a large chunk of value and worry whether they will their jobs in the worst economic decline since the Great Depression.

In Los Angeles, city bureaucrats have offered a handful of feeble proposals to squeeze a little more money out of the public and a similar list of small cuts that barely make a dent in the soaring deficit of more than $500 million over the next 20 months.

Mayor Antonio Villaraigosa is wringing his hands about "immediate and dramatic budget adjustments" without saying what they might be while Councilman Bernard Parks warns "it's for real now, everything's got to be on the table." 

Rhetoric aside, there's no indication at all that city officials actually are willing to put everything on the table, especially the high cost of salaries and benefits. Instead, they are hoping for a Hail Mary pass through of tens of millions of dollars from the federal government to save the day.

Smaller cities like Rio Vista and Isleton are considering going into bankruptcy like Vallejo like to fend off creditors and buy time to get the finances in order, according to the Sacramento Bee.

"I'm surprised not every city is discussing (bankruptcy)," said Marc Levinson, the lead bankruptcy attorney for Vallejo which took that action in May. "It's absolutely horrible out there."

In many ways, the state is even worse shape to deal with its $27.8 billion deficit looming over the next 20 months.because of political gridlock.

Democrats like Assembly Speaker Karen Bass "want to split the baby in half," with half the money coming from tax hikes and half from a federal bailout.

Republicans are adamantly against both higher taxes and a federal bailout and Gov. Arnold Schwarzenegger continues to find the weight of the political conflict to heavy to move towards a compromise.

It seems we are at a breaking point and all eyes are on the new president who takes office two months from now to somehow, some way perform a miracle politically and economically.

Good luck, Mr. President -- it will take more than the Fireside Chats on the radio that FDR used to soothe the nation 75 years ago.

• Visit Ron Kaye's Web site.