Looks like right now, the state is well and truly screwed:
The state of California — its deficits ballooning, its lawmakers intransigent and its governor apparently bereft of allies or influence — appears headed off the fiscal rails.
Since the fall, when lawmakers began trying to attack the gaps in the $143 billion budget that their earlier plan had not addressed, the state has fallen into deeper financial straits, with more bad news coming daily from Sacramento. The state, nearly out of cash, has laid off scores of workers and put hundreds more on unpaid furloughs. It has stopped paying counties and issuing income tax refunds and halted thousands of infrastructure projects.
Twenty-thousand layoff notices will go out on Tuesday morning, Matt David, the communications director for Gov. Arnold Schwarzenegger, said Monday night. “In the absence of a budget we need to realize this savings and the process takes six months,” Mr. David said.
I haven’t followed the internal politics of California closely, so I really have only a passing knowledge (translation- I only know what I know from national news sources), but I am aware there is some law that was passed that makes it nearly impossible to raise taxes and that the Republican minority seems to run the show. If that is an inaccurate perception, or if you have more to offer, fill us in in the comments.
At any rate, with the suspension of infrastructure projects and the pinkslipping of tens of thousands of employees, they are costing themselves even more money in the long run:
Even stranger math: The Senate Transportation Committee held a hearing not that long ago where Caltrans director Will Kempton explained that 276 infrastructure projects are going to be suspended tomorrow to save $3.7 billion dollars and prevent the state from defaulting on its loans. But as John Myers of KQED Capitol Notes explained, even stopping the projects costs money:
Kempton: will cost $199 million to shut projects down, $192 million to restart them.
Thus, not only is California a mirror of the cycle that is playing out nationwide- people are losing their jobs or worried about losing their jobs, as such they are spending less money in attempts to save, causing more businesses to not make money and they lay off employees, meaning there are more people with less money and worried about their future, etc., but it also seems to be falling into the cycle that we see played out all the time in poorer communities. In rural areas of WV it is not uncommon for people with inadequate resources to stay mired in poverty forever, whether it be because they do not have the money for transportation, education, or even to purchase the appropriate attire for work, they borrow money from pay day lenders at astronomical lending rates and get deeper in deeper in debt without making any steps forward, and they slowly spiral downwards. This plays out across the spectrum in poor areas here- people are too poor to purchase health insurance, thus have inadequate health care, thus they ignore smaller health issues until they become larger more expensive health issues. Long story short, there is a reason they call it the cycle of poverty.
At any rate, the comparison may not be perfect, but I am not sure how California will fight its way out of this mess. In recent weeks there have been stories about court orders requiring prisons to release convicts because the state has allegedly been unable to provide adequate care, and this is brought on in part by the massive prison population and the never-ending budget crisis. According to the Center for American Progress, California was slated to get 60 billion from the stimulus bill (and I do not know what version of the bill that map is based on), and you can see how the stimulus bill is really just going to be a temporary stopgap to avoid total disaster. A point for Krugman, if you will.
If you have more info, fill us in. It is worth noting that on top of all of this (in fact, perhaps a leading cause), is that California is ground zero in the current housing crisis.