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California in ‘fiscal emergency’

BBC News
The governor of California has declared a fiscal emergency in the US state to address a budget deficit of some $24.3bn (£14.5bn).

Governor Arnold Schwarzenegger also ordered many state offices to close for three days each month until June 2010, with staff unpaid for those days.
California has been one of the US states hardest hit by the recession.

The moves comes after state legislators missed a 1 July deadline to approve a budget for the coming financial year.

State Controller John Chiang has said the failure to meet the deadline means the state deficit will increase by up to $6.5bn by September.

…On Tuesday, the Californian Senate failed to agree on Democratic proposals to shave $3.3bn from education and other programmes as a stopgap measure to address the shortfall.

Democrats believe cuts should not slash vital social programmes while Republicans argued that much deeper spending cuts were needed to balance the budget.

Republicans and Mr Schwarzenegger have also ruled out tax increases.

California struggles to balance its budget every year, but this year has been particularly difficult.

And the size of the Californian economy – it is the world’s eighth largest economy and generates nearly 13% of US gross domestic product – means what happens there matters for the rest of the country.
(2 July 2009)

California’s IOU to the world

Sasha Abramsky, Guardian
The budget crisis that has paralysed America’s wealthiest state could be a taste of what’s in store for the rest of us

In recent months, a number of reports by risk-analysts, insurers and intelligence agencies have highlighted the possibility of political instability following in the wake of the global economic turmoil. Most of the potential trouble spots have been identified as being in poorer parts of the world. Last week, Lloyds, for example, highlighted the risk of instability in Latin America.

Over the past few weeks, however, tremendous political chaos has emerged in some of the most affluent parts of the globe. In the UK, the government is teetering on the edge of collapse and a tsunami of somewhat inchoate rage at the shenanigans of politicians of all stripes is rolling in on parliament. In Italy, Silvio Berlusconi’s peccadilloes are adding fuel to the fires of discontent. And in California, America’s wealthiest and most populous state, an extraordinary political stalemate around how to deal with a yawning budget deficit risks essentially catapulting the state into insolvency, devastating social programmes and education alike, and igniting massive popular anger. As of today, California has started issuing billions of dollars in IOUs to its creditors.

California’s crisis contains the most lessons for how economic collapse might play out in the arena of public services in wealthy regions over the coming years. For it represents a colossal clash of visions that have co-existed (albeit uncomfortably) for decades but are now increasingly incompatible.
(2 July 2009)

Californians are sinking themselves

Gary Kamiya, Salon
An inflexible right wing is allowing the Golden State to drown in debt. But it’s not alone

The world’s eighth-largest economy has just gone belly-up. When midnight tolled on Tuesday night with legislators and Gov. Arnold Schwarzenegger still deadlocked over how to resolve the state’s staggering $24 billion budget shortfall, California became unable to pay its bills. The state will have to begin issuing IOUs to its creditors as early as Thursday. It is the worst budget crisis in the state’s modern history.

There is an unreal, almost dreamlike quality about this moment. Dreadful things are about to happen: Hundreds of thousands of children will lose their healthcare. Five thousand state workers will be laid off. Massive cuts will decimate education at every level. Social services will be slashed. Two hundred and twenty-nine parks, out of a total of 280, will be shut down. Even some of the state’s landmarks may go on the auction block to raise money.

Yet as their state prepares to go over the cliff, California’s citizens seem weirdly oblivious, or resigned, or numb. Like inhabitants of a corrupt third-world country who have utterly lost faith in their government and in politics itself, or ostriches sticking their heads in the sand, Californians are behaving as if the whole thing is out of their control. Or even that it isn’t happening at all.

Californians are not directly responsible for the state’s budget debacle. They are not the legislators who are so ideologically polarized that on Tuesday they could not even agree on an emergency partial budget fix that would have saved the state $5 billion. But in a larger sense, Californians are indeed responsible for today’s crisis. The cumulative weight of their decisions, over decades, and their inability to reach consensus on the fundamental issue of what government should do and who should pay for it, are squarely responsible for the historic mess this unruly nation-state finds itself in today.

It is a truism that California is a national bellwether.

… What happened? Why did the center fail? Why has California, a place famous for giving birth to cutting-edge ideas that changed the world, proved humiliatingly unable to manage its own affairs? Why can’t California do politics as well as it does technology, biotech, movies, music and social justice movements?

Beyond the state’s dysfunctional system, the short answer is the rise of the hard-right GOP. Pushed far to the right by ideologues like Newt Gingrich, Tom DeLay, Grover Norquist and their ilk, California Republican lawmakers have staked out an absolutist line against taxes that makes governance nearly impossible. Lawmakers who believe and act on Reagan’s famous line that “government is not the solution to our problems, government is the problem,” are walking oxymorons. Why expect anti-government Republican legislators to resolve a budget crisis when that crisis will result in their goal: the destruction of government? The floundering Governator may not be an extremist, but he remains in thrall to the members of his party who are.

… Will California be able to pull itself out of its current hole? Certainly it has done so in the past. Its history is nothing if not a tale of reversals and unexpected triumphs. It will no doubt muddle through. But in the long run, to overcome its structural problems, it must transform some of its most cherished values. Without abandoning its individualism, utopianism and radicalism, it must learn how to use them in the world — with all the compromises that requires. Like an aging starlet, the Golden State is clinging desperately to its glorious youth. But it is past time for it to grow up.
(2 July 2009)