Good news, California: Surplus is $2.4 billion

[haele]

56. Well, there's debt and there's "debt"

One of the things I learned in both Macro Economics and Financial Management (both taught from a PhD who used to run B of A's foriegn fleet leasing program before his second PhD) is that running a debt that invests when you have enough income to continue to pay the debt is actually considered economically sound. For indivuals, that means things like a mortgage, a car to get you to and from work, and a credit card for emergancies. For businesses, it means loans or leases on operating equipment, raw materials, and facilities. For governments, its pension payments to keep their retirees from costing the public even more by keeping them off the streets and public works that employ people and reduce operational costs in the long run through improved, efficient infrastructure.
As long as you can make headway on your debts, debt itself isn't bad.

In fact, if you work at an incorporated business, your paycheck is a debt "on the books" your employer has to identify and set aside at the beginning of the fiscal year on their ledgers as a payable account for accounting purposes, and the cash to pay you is usually accrued six to eight months in advance by the company.

Now, bad debt is taking your entire month's paycheck and all your credit cards, blowing it all over the weekend in Vegas on slots, hookers and blow - and then taking out a payday loan to pay the mortgage and bills for the month and make that month's credit card payment. Bad debt is a bad investment, accepting either an increase in intrest payments or a decrease in revenue in exchange for a component in your business model.

That's why tax cuts usually end up in the debt side of the ledger, because the benefit of a tax or revenue cut when budgeting is typically offset by a loss in some form of operating or investment capability. Unless that revenue cut is benefiting someone who would take that money they are not paying the overarching governmental entity and spend that money to improve local government and infrastructure, thereby reducing costs to the larger entity, it's just money needed to keep the community safe and thriving, money that can be used to invest in community good and give returns, that is thrown away on people who don't need it.
If you're going to spend it to improve your situation, it's good debt.
If not - it's bad debt.

$1 trillion "in the hole" doesen't hurt California at all so long as it can be paid down without starving the state. And remember, a good 1/2 of that debt is in legislated or annually budgeted payments that are always going to be on the books, like facilities upkeep, salaries and pensions. (Edit Here) In 2010, the annual Gross State Product for California was $1.9 trillion - and it has increased since then. It's expected to be higher this year, because it's already reached within 5% of that number in August.

Being worried about a debt like that is like sitting your family down and telling them:

"We have to really tighten our belts; we're $100K in debt this year; we're going to go bankrupt if we don't cut costs!- While our annual household income is $80K a year between your mom and me, when I added up everything we owe - the total mortgage and principle on our house, the total outstanding on our car, all our taxes and insurance payments for this year, the internet/cable/cell phone bundle and utilities for this year, Little Johnny's music lessons and Little Billy's allowance, it comes to $100K total and we have to pay it off now, or we'll be in big trouble ten years from now when the kids start going to college and maybe I want to retire."

When in reality, all that needs to be paid out for that year is $30K total of the above costs identified, and they still have $50K to spend as they feel best for the family finances - have a reasonable standard of living and maybe put $5K aside pay down the mortgage, maybe pay off the car, or put in various investments.
Or blow that $5K on a family trip to Disneyland over the summer.
Good Debt/Bad Debt.

Haele