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California Budget Is Already in the Red 10 Weeks After Passage

Oct. 10 (Bloomberg) — California Governor Arnold Schwarzenegger will know within a month whether a $1.1 billion drop in revenue collections is part of a growing budget shortfall or an isolated event, his budget spokesman said.

Revenue in the three months ended Sept. 30 was 5.3 percent less than assumed in the $85 billion annual budget, state controller John Chiang reported yesterday. Income tax receipts led the gap, as unemployment reached 12.2 percent in August.

“The culprit here appears to be estimated quarterly personal income tax statements,” H.D. Palmer, the governor’s budget spokesman, said yesterday. “The numbers are cause for concern, but the issue now for us is to determine if this is a one-time event or whether it has more long-term implications.”

Original story available on Bloomberg News

Most people are aware that California is a huge part of the economy and therefore “too big to fail”, but it is really irritating for many people to see a state that allows direct referendum vote on tax increases (which are always voted down ) and on increased services (which is always voted in favor) is stunned by the fact that there is no money. It is understood that it gets a bit more complex with the global economy, but the last time California has seen this with Orange County — one of the most obscenely rich counties in the country — bankruptcy after voters passed Proposition 13.

So, the people sitting in their homes worth millions of dollars on the beach did not have to pay as much tax as the property mid westerner income (a point eloquently made by Warren Buffet at the time), it was clear that voters decided they were entitled to top-notch service, while very little tax was not a sustainable model. The federal government bailed them then and here we are again. The attitude that they should reap the benefits of horribly inflated housing market, but did not Pony Up corresponding tax revenue – the rest of us should just bail their asses rich when their model fails – is really not fair.

Is there any precedent for Washington forcing another unit of government into receivership? Even if there’s no precedent, couldn’t it happen if receivership (and federal restructuring of the relevant state laws) were made the price of federal cash? It seems to me Congress has the authority under the elastic clause to do what needs to be done. I mean, the country really will be in dire straights if its biggest state is allowed to plunge into intensive care.

California’s Budget Suffers ‘Major Blow’ as Debt Sales Loom

By William Selway and Michael B. Marois

Oct. 9 (Bloomberg) — California’s revenue collections trailed its forecasts by $1.1 billion during the first three months of the fiscal year, showing new deficits are emerging in the budget Governor Arnold Schwarzenegger signed July 28.

Revenue was 5.3 percent less than was assumed in the $85 billion annual budget during the three months ended Sept. 30. Income tax receipts led the shortfall, as unemploymentreached as high as 12.2 percent in August.

“Revenues more than $1 billion under estimates and recent adverse court rulings are dealing a major blow to a budget that is barely 10-weeks old,” Controller John Chiang said in a statement. “While there are encouraging signs that California’s economy is preparing for a comeback, the recession continues to drag state revenues down.”

The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing.

Original story available on Bloomberg News

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This entry was posted on Saturday, October 10th, 2009 at 7:26 pm and is filed under North America. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.