Tags: state | budgets

California Budget Crunch Spells Trouble

By    |   Wednesday, 15 Jul 2009 09:53 AM

When a state that represents 13 percent of the U.S. economy can’t pay its bills, you’ve got trouble.

That’s the situation with California, and it’s not the only big state whose finances are in trouble. New York and Illinois aren’t too far behind, the Financial Times reported.

The federal government is boxed in as far as California goes, the newspaper said. On one hand, it can’t turn its back on the U.S. state with the biggest economy during a vicious recession.

But on the other hand, any talk of a bailout would give California’s legislature and governor even less incentive to come up with a plan for spending cuts and tax increases.

California’s budget deficit totals a whopping $26.3 billion, or 23 percent of its revenue, according to securities firm Keefe, Bruyette and Woods.

The state’s balanced budget rule requires just that every year, but provides no guide on how to get from here to there.

The state already is in partial default, paying vendors with IOUs instead of cash. If the unlikely scenario of California defaulting on its $69 billion of debt comes true, the municipal bond market would likely go into a state of shock.

And then, look out below.

The state is so disorganized that it can’t even get its IOUs out on time.

“We are out of cash now,” Carlos Flores of the San Diego Regional Center, which provides disability services, told The New York Times.

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When a state that represents 13 percent of the U.S. economy can’t pay its bills, you’ve got trouble.That’s the situation with California, and it’s not the only big state whose finances are in trouble. New York and Illinois aren’t too far behind, the Financial Times...
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2009-53-15
Wednesday, 15 Jul 2009 09:53 AM
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