California In The Red Again
Two weeks ago, California Governor Arnold Schwarzenegger said that in January he would declare a “fiscal emergency” in the face of an anticipated $14 billion budget defecit for the 2008-09 fiscal year (July 1, 2008-June 30, 2009)(“Budget Crisis Decree Coming”, Saturday December 15, 2007, The Sacramento Bee).
Tax receipts rose 40% over the last 4 years in California fueled by the housing boom and expanding economy – but expenditures rose 44% (“The Red Ink State” (subscription required), Friday December 28, 2007, The Wall Street Journal).
Now, with the air coming out of the housing bubble, the state is facing the prospect of falling revenues. In fact, sales tax receipts are actually down during the first 5 months of this fiscal year (July 1 – November 30, 2007) compared to last (Statement of General Fund Cash Receipts and Disbursements, November 2007, p. 4). With so much employment related to real estate and construction can personal income tax receipts be far behind?
Schwarzenegger is talking about cutting spending by 10% across the board. Democratic Assembly Speaker Fabian Nunez is talking about an internet sales tax, increasing corporate taxes and doubling the car registration tax.
Top Gun foresaw the impending budget crisis more than a year ago, at the time of the 2006 elections, and warned investors about the “Rebuild California” bonds on the ballot then and their implication for California municipal bonds.