People across America should be paying careful attention to the budget crisis currently roiling the state of California. They are overdue on their annual budget amidst wrangling over how to close a $15 billion dollar shortfall.
Governor Schwarzenegger has issued an executive order that will layoff 10,000 temporary state workers and reduce the pay of others to the minimum wage. The State Controller, John Chiang, has refused to comply with the order and is allowed to borrow money to pay salaries until a budget is passed.
The reason why this is so important for everyone is because California is a harbinger of what is to come for states across the country. Their budget shortfall is a direct result of the housing crisis and credit crunch that is slowly grinding down our economy. Like California, many states rely on personal income taxes and/or local property taxes to fund their budgets. With foreclosures rising and property values dropping, state revenues are shrinking. Couple in lost payroll taxes from rising unemployment and reduced sales taxes from strained consumers and states are looking at a very gloomy financial picture.
New York’s Governor David Paterson has already warned of “painful” cuts and that New York faces its worst budget crisis since the ’70s.
The point here? Pretty soon, we’re all going to be in a California state of mind. And since we’ve spent the good times borrowing up to our eyeballs, we’re going to pay a very dear price to borrow the money that puts us completely underwater.
Update (9/16/08): This still isn’t resolved. The legislature passed a budget and Schwarzenegger is going to veto it. They have the votes to override him, but the fix is temporary; accounting tricks resolve the shortfall. Get used to it. This is coming to a state near you. There’s no money anywhere.