The Los Angeles Times reports that the Governator is expected to appeal to Washington for some $8 billion in bailout funds, and is holding hostage CalWORKS, the mainstay of California's welfare program (and a long standing and favored catamite to the country's progressives) in the unlikely event he doesn't get it. Arnie also seems poised to select this as an opportune time to re-open the question of drilling for oil off the Santa Barbara coast.



Of course, a number of other things are weighing on California's debt addled mind. For instance, the impact of shiny new health care cost reductions on the states massive debt load. Readers will be well aware of our view of the cost shell game being played with this legislation, but, we ask you, what is the point of hoisting $4 billion or so in expenses on California if the Federal government is going to have to send $8 billion right back into the state as a result? Optics, of course. Still we are fairly sure this will be an isolated incident as we cannot imagine that any other states are facing fiscal issues that would prevent them from easily paying for the cost savings the new health legislation will bless them with.



Of course, California doesn't seem to have expected federal legislation that would result in such a severe fiscal emasculation as is performed in the present bill and, given that Arnie was one of the few Republicans of any stripe to support the legislation, you can almost taste the sour sting of betrayal in the letter he wrote Nancy Pelosi yesterday:

Dear Madam Speaker, As one of the few governors in the nation who attempted to pass comprehensive health care reform at the state level, I have great appreciation for the historic effort you are leading in Congress. In fact, I am one of the only Republican elected officials in the country to publicly support the President’s health care reform efforts. When asked for my support, I was assured that federal legislation would not increase costs to California or include new unfunded mandates. Unfortunately, under nearly every scenario we can predict, the federal health care reform legislation being debated would cost California’s General Fund an additional $3 billion to $4 billion annually. This crushing new burden will be added to a safety net that is already shredding under billions of dollars in unfunded federal mandates that we are struggling to meet. Medicaid is a partnership program between the federal government and the states. As the partner responsible for implementing this program, I am telling you that our Medicaid program is already at the breaking point, and if federal health care reform is passed without addressing the underlying faults in the system, health care reform will fail.

Sucker.



While we explore the fate of California, it is illuminating to notice the tired pattern of sovereign extortion in the form of the threat of imminent fiscal violence to favored (or even critical) government services. Why is it that municipalities (or the Federal government for that matter) seem to uniformly respond to looming fiscal crises by announcing potential cuts in, for example, "...the In-Home Health Care Services program for the disabled and elderly poor," or police, emergency services, fire, and the department of motor vehicles? Of course, we know the answer.



And so, California will, in all likelihood, get a large, steaming hunk of Federal extortion payments, making even more explicit the Federal Government's role as the lender of last resort for the abysmal failure of progressive (and expensive) municipal experiments in everything from welfare to green energy to hopelessly mathematically challenged defined benefit programs. Given the total surrender of federalism and the wholesale abandonment of the republic, the clever Zero Hedge reader may consider adding to their municipal credit default swap pricing model a variable that captures expected gubernatorial expertise in fiscal extortion and lobbying. We highly suspect that the last states to fail will be those who exhibit the highest levels of operational excellence in extracting liquidity from an increasingly sore Federal teat. California seems to be off to a good start, but then their thirst for mother's milk is awfully daunting.