Fiscal Armageddon In California

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If the ballot measures fail and the recession does continue unabated into 2010, the budget gap could widen again into the $20 billion range.  But the governor and legislative leaders may have fired all their political bullets in February, leaving them with few options beyond wholesale spending cuts in education, health and welfare services and even prisons to close the gap.

– Dan Walters, “Foundation of budget deteriorates”, The Sacramento Bee, April 12

This is an immense mess, partly caused by the recession, partly caused by years of fiscal irresponsibility.  And it may be the day of reckoning that Capitol politicians had long avoided, compounded by the obvious anger of voters.

Wholesale slaughter of state spending may be their only option.  This is a pivotal point in California political history, a fiscal Armageddon.

– Dan Walters, “What’s Plan B if five ballot measures fail?”, The Sacramento Bee, May 1

California state government is in a state of fiscal emergency.  State income tax revenues for the fiscal year beginning in July 2008 through April 29, 2009 are $9 billion less than a year ago ($37.5 billion vs. $46.5 billion – a 19% decrease).

Income tax revenues account for about half of the state government’s revenues and about 25% of income tax revenues arrive in April.  But Dale Kasler of The Sacramento Bee reported this morning (“No april tax bonanza for state”, The Sacramento Bee, May 1) that those hoping for a strong April are sorely disappointed as income tax revenues through Wednesday (April 29) have come in 43% below last year’s level.


State politicians were hoping for some budget reprieve from the passage of five propositions (1A-1E) in the upcoming Special Election on May 19th.  But polls strongly suggest these initiatives won’t pass.

Issuing debt is very difficult for the state right now because of financial market conditions and downgrades by ratings agencies.

They better cut costs and they better do it quick.

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