The Fiscal Collapse and Political Farce That Is CaliforniaMay 19, 2009 may go down in California history as the date the most populous state in the Union became "obviously ungovernable." For on that date, the voters of California told their legislative representatives they had just elected to office that they - the voters - really did not want those representatives to attempt to operate and maintain government within the state.
And they repudiated the political compromise worked out by Governor Arnold Schwarzenegger who they elected when they recalled Governor Gray Davis, the second governor to be recalled in American history.
There aren't many of folks old enough to remember when during the depression, along with banks going under, state and local governments including schools started paying vendors and employees with "warrants" which were IOU's based on the hope that someday enough cash would come into the treasuries to cover them.
The State of California is about to start massive layoffs beginning with about 6,000 employees in the next month with the initial largest layoffs in the Department of Corrections (yes, prison guards).
While most Californian's don't see the magnitude of the problem, the State and local governments of the world's 8th largest economy will suffer a financial shock over the next 6 months. I mention local governments, because the State is considering "borrowing" property tax revenues and will be unable to remit sales tax revenues to local governments because the State is again getting low on cash. The State's deficit is now 25% of the State General Fund and rising.
State spending on everything from cars and computers to food and toilet paper is going to have to be cut by a minimum of 15%. This is a surprisingly large amount of money that is going to cease to enter the private sector. The ripple effect in the national and world economy will be noticed by the economy's statistics keepers.
It's just the way it is unless Congress decides to intervene to bail out another poorly managed "too-large" economic entity within the American economy in order to reduce the impact on the world's economy. The Los Angeles Times, in discussing the likelihood that private investment in California's economy will dry up, noted today:
Business Week yesterday called California a "basket case" in an article noting that 47 states face budget gaps explained:
Indeed, some of us do see it that way. As we proposed in our Three Californias web site several years ago, California is too large to be effectively governed unless it becomes a separate country. It is time to split the state as we have proposed.