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  1. #1
    Senior Member zeezil's Avatar
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    California's budget crisis could have ripple effect

    California's budget crisis could have ripple effect
    Fiscal woes have potential to hurt economies worldwide.
    By Bob Keefe

    WEST COAST BUREAU
    Tuesday, September 09, 2008

    IRVINE, Calif. — A budget crisis of unprecedented proportions has already pulled down the California economy and now is threatening to drag down the rest of the country as well.

    If the United States isn't already in a recession, California's cash crisis has the potential of putting it in one, some economists say. Overseas economies could be hurt, too.

    "It's very possible that the California flu could spread not just nationally but internationally as well," said Peter Navarro, an author and economist at the University of California, Irvine. "It's a very serious and significant threat."

    The budget morass is a result in part of factors that have also hurt other states: high foreclosure rates, revenue that has trickled in below expectations and enormous fuel costs. Additional factors are particular to the way California does business, including voter initiatives that tie up cash streams and the requirement that a tax increase be approved by two-thirds majorities in both legislative houses.

    California isn't the only state facing budget woes this year.

    At least 29 states are grappling with a cumulative shortfall of $48 billion, according to the Council of State Governments. Texas is one of a few states with a budget surplus this year, in part because of higher revenue from its booming oil industry.

    But California's budget crisis and its implications dwarf the fiscal problems in any other state. California's deficit is a staggering $15.2 billion and could grow to an estimated $22 billion by next year. That's bigger than the entire budget of many states and even some small countries.

    Gov. Arnold Schwarzenegger and the Legislature are deadlocked over how to solve the shortfall. As a result, the state has been without a budget for more than two months. Both sides agree that any solution will almost certainly require both tax increases and draconian budget cuts that will pull more money out of consumers' pockets and further damage the state's economy.

    "This budget will not get done by taking it easy or doing easy things," Schwarzenegger said at an Aug. 20 news conference. "This budget ... will get done only if we all make tough choices that we maybe thought we would have never made."

    In a newspaper column published Sunday, the governor pushed a compromise that includes both "difficult but necessary (spending) cuts that amount to nearly $10 billion" and "new revenues, including a temporary 1-cent increase to the state sales tax."

    Government programs such as medical insurance for low-income residents are already being slashed. The state has laid off thousands of workers.

    Schwarzenegger has even ordered temporary cuts in state workers' pay to the federal minimum wage — $6.55 an hour, or about $13,600 a year — until a budget gets passed. The state controller, a Democrat, has refused to implement the order, saying that it will invite lawsuits and that computers are not equipped to handle the change.

    What's more, the state's prison guard union is initiating a recall effort against Schwarzenegger, a union spokesman said Monday. The governor and the union have been at odds for years; they have been unable to agree to a new contract for the guards, whose labor deal expired in 2006.

    Whatever happens here will almost certainly reach well beyond the state's borders, some economists say.

    California is the nation's most populous state and the biggest contributor to the U.S. economy, representing about 13 percent of the gross domestic product.

    "What you have is 13 to 15 percent of U.S. consumers who are going to be feeling an extra pinch," said Steven Cochrane of Moody's Economy.com. "So yes, I think the rest of the nation would feel it, too."

    The potential effects are far-reaching.

    When consumers anywhere have less money because of higher taxes or lower incomes, they're less likely to buy cars or homes or take vacations. That can hurt auto workers in Ohio, lumber companies and home supply stores in Georgia, airlines in Texas and vacation destinations in Florida.

    What makes California more important to the nation's economic health than other states is its size and influence.

    With nearly 38 million residents, California's potential spending power is 50 percent greater than that of Texas.

    "Whatever happens in California has huge implications for pretty much the entire country, whether it's here in Georgia or Idaho," said Sujit CanagaRetna, senior fiscal analyst with the Council of State Governments in Atlanta. "We're talking about a state economy that's the fifth- or sixth-largest economy in the entire world."

    Could other states face budget problems at the same level? Probably not. With the biggest deficit in the country, California has much more ground to make up than do other states.

    California's deficit is equivalent to about 21 percent of its fiscal 2008 budget, according to the Center on Budget and Policy Priorities, a research group.

    California also has a proportionally smaller "rainy day" fund than most states to cover its bills during lean years.

    It's also one of only three states — Rhode Island and Arkansas are the others — that require the votes of at least two-thirds of its legislators to pass a budget, making compromises harder to come by.

    Additional material from The New York Times and the Los Angeles Times.
    http://www.statesman.com/news/content/n ... udget.html
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  2. #2
    Senior Member agrneydgrl's Avatar
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    Get rid of the over 2 million illegals in this state and it will go along way in helping out our budget. I don't see why people don't realize that the illegal situation has a direct result on our economy.

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