California Governor Arnold Schwarzenegger speaks during a news conference at the State Capitol in Sacramento. After lawmakers failed to meet a midnight deadline Tuesday to close the $24 billion state budget gap, Gov. Schwarzenegger declared a state fiscal emergency Wednesday.
(Max Whittaker/Reuters)Photos (1 of 1)
California crisis a threat to US economic recovery
Economists worry that the budget deficit could hurt the state just as it has begun showing signs of recovery.
By Michael B. Farrell | Staff writer/ July 1, 2009 edition
San Francisco
After lawmakers in Sacramento failed to meet a midnight deadline Tuesday to close the state’s $24 billion budget gap, Gov. Arnold Schwarzenegger declared a state fiscal emergency Wednesday. He hoped to prod politicians into coming to an agreement over spending cuts and keep the state’s financial crisis from deepening.
Politicians continued to wrangle over cuts Wednesday that would meet the approval of Governor Schwarzenegger, who has demanded a plan that balances the budget. Meanwhile, the state’s controller prepared to issue IOUs to creditors if the state can’t agree on a spending plan by Thursday.
California is not the only state struggling to pass a budget, but the depth of its crisis and the size of its economy raises the financial problem to a level of national concern.
“It’s easy to make fun of all those greedy, flaky Californians, but the national economy can’t recover with an anchor the size of California holding it back,” says Dan Schnur, political scientist at the University of California in Berkeley and a former Republican strategist.
Home to more than one-tenth of all Americans and an annual economy of $1.7 trillion, California is a national retail behemoth and engine for the overall economy – in real estate, auto sales, technology, construction, and agriculture.
Economists worry that the budget crisis could harm the state just when it is starting to show signs of improvement.
The trouble in California “makes everything worse” nationwide, says James Galbraith, a political scientist at the University of Texas in Austin.
Several other states began the fiscal year Wednesday without a budget. Arizona, Connecticut, Kentucky, Mississippi, North Carolina, Ohio, and Pennsylvania are all facing delays in passing spending plans, according to the National Conference of State Legislatures.
Mr. Galbraith proposes national aid to states. “One has to ask to ask why Bank of America is more important than the State of California,” he says.
Economic stimulus money is available to states, but it is not nearly enough to fix California’s financial woes, Mr. Schnur says.
The Obama administration declined Schwarzenegger’s request for financial help earlier this month, but did not close the door entirely. If Washington is worried about putting money in Sacramento’s hands, there are ways around that, said Jean Ross, executive director of the California Budget Project, a nonpartisan public policy research group.
“Washington could further increase its investment in health programs such as Medi-Cal and the Healthy Families Program, where the federal government already pays the majority of costs,” she wrote recently in the San Diego Union-Tribune.
While Schwarzenegger has stressed that he’s not looking for a federal bailout, the state’s treasurer has asked for some federal help. Like many other states, California wants federal guarantees that would allow it to buy short-term loans at lower interest rates.
Schwarzenegger has given lawmakers 45 days to come up with the necessary cuts to balance the state budget. Says Schnur: If lawmakers cannot find some common ground soon, this impasse “could end up leading to real fiscal and economic meltdown.”
Comments
2. Jo Ann | 07.01.09
As an employee of a vendor that provides services for CA, I can say from the experience of last year, my company will not survive this impasse if we go 45 days with no budget. Last year’s impasse had my company behind five months with rent and bills, which we just got caught up with two months ago. The only thing that kept us going was the people we assisted and the faith of our staff who worked all summer into the fall with no pay that we could ride this out and come out stronger and have a successful financial recovery. I spent the better part of last summer receiving apologies from state employees from the top down who had their hands tied at getting timely payments out to my company for past services rendered months previous. I can’t take apologies to the bank and deposit them to pay bills. I can’t take apologies and put them in my gas tank so I can assist the people my company was hired to assist. Disrupting cash flow at the government level may slow down the red ink, but every day that spigot is shut off, is another day the vendors who have contractual agreements with the State of CA, have to fend for themselves with limited means to back themselves up.
3. Hector Maquieira | 07.01.09
Legalize it! That will help close the budget deficit! Marijuana is not as harmful as alcohol nor tobacco! Legalize it!
4. dom youngross | 07.01.09
“… the national economy can’t recover with an anchor the size of California holding it back”
What’s a $1.8 trillion federal deficit, water wings?
5. Steve | 07.01.09
We need to know exactly why California has a $24 billion budget deficit. We need to know exactly, not some broadbrush statement that says nothing.
6. Michael | 07.02.09
Schwarzenegger is a complete and utter failure, along with his Republican cronies. The GOP only cares about themselves, not the state OR the country.
9. M Dy | 07.02.09
What happens if the budget does not get fixed, is there anything Gov. Schwarzenegger can do executively to make finantial mandates on the budget?
10. Dutra | 07.02.09
Arnie, you had your chance and you blew it! I want to see you fail, and fail miserably.
11. Stephen Todd | 07.02.09
Governor Swarzenegger has done nothing but complain and has done little over the years to help California out. With a Democratic wife it was hoped that some give and take could take place. He’s a failure. the legislature is a failure. And we Californians failed to replace him with someone better qualified. Ousted Gray Davis’ faults seem minor to this governor. He doesn’t listen to the people. Even those who supported him most in the Central Valley failed to get his support on proposition 8. He is out of touch with the people by all of his failed propositions.
12. Dani | 09.02.09
Okay, California is doing all it can. To the people who think we’re not, you must live on another state…
Ugh, people irritate me.
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1. john | 07.01.09
Here is a state that wants the rest of the country to live by their rules, but they cant live by their rules. ummm!