Is California Going Broke?


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About a month ago I blogged about Nevada’s budget crisis, and how we were looking at having a special legislative session to find enough money to finish the year. We did (although how we’re going to fund next year will still be a challenge). Now, I’m reading reports that California is facing the same problem, except on a much larger scale.

The new budget in CA was supposed to be signed and in effect July 1st. It’s still being fought over, largely because the state is facing somewhere in the neighborhood of a $15 billion shortfall, with some estimating it’s really closer to $20 billion. With CA’s budget running at around $100 billion, that means they’re short by close to 20%.

Like Nevada, California has seen property taxes and sales taxes fall dramatically. Housing prices have been especially tough – the meteoric rise in house prices is being followed, in many areas, by an equally volatile crash in those same values. We were told a story recently about a bank choosing to bulldoze a brand new housing development, rather than keep the unsellable properties on the books. I read recently about one developer’s offer to “buy one, get one free,” where you bought one house in a desirable San Diego location and got another one for free, in a not-so-desirable, way-outside-of-town, it-made-sense-when-things-were-booming location.

The government is taking unprecedented steps to keep services open, including laying off about 100,000 state workers, and rolling back pay for the majority of others to the federal minimum of $6.55 per hour. Three lawsuits have been launched by state workers unions in response (so far), and that’s without considering what’s going to happen when people lose more than half their income, without a corresponding decrease in their bills.

But unlike Nevada, CA’s fiscal woes are likely to have a much larger effect on the country as a whole. This is a state that, were it a separate country, would have the 7th largest economy in the world. I think there’s a bigger question here – can the country afford to have CA spiraling downward in this fashion?



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