On May 19th, California voters rejected several budget proposals put forth by Governor Arnold Schwarzenegger to solve the state's severe fiscal crisis. This means there is now a $21.3 billion hole to fill in the state's finances, according to the Governor's office. And so soon after heroically overcoming a $42 billion deficit. So why this new shortfall? The answer: the recession.
Recession and the Housing Bubble
California has been hit worse than most states by the economic downturn. This is due, in large part, to its own housing crisis. NPR's All Thing's Considered reported that in 2007 California accounted for six of the top ten metropolitan areas for most foreclosures per household. According to the Chief Economist of the California Association of Realtors, new housing permits dropped 45.1% and median home prices dropped 46.8% between 2007 and 2008.
The Budget Crisis
So how does Governor Schwarzenegger hope to solve the fiscal crisis? With hefty slashes in state services, a massive yard sale of state assets, and a hodgepodge of other measures.
Education, Healthcare, and Welfare
Education spending will be cut by between $2.3 billion and $5.4 billion, meaning a school year shorter by a week and thousands of teachers laid off. Even higher-education will suffer; outreach funding for the University of California and California State University will be terminated and enrollment will fall by some 50,000 students.
Public health and social services will take the brunt of the fiscal scalpel. 225,000 children will likely lose health coverage under the Healthy Families Program and funding for Medi-Cal, the state's healthcare program for the poor, will be cut by about 10%. Sexual education, HIV prevention, substance abuse treatment, and child abuse programs will either be drastically slimmed down or eliminated all together.
Prisons, Federal Money, and Oil
Other measures being considered include releasing 38,000 inmates from the state's overburdened prisons (mostly undocumented immigrants), borrowing money from local government coffers, selling real estate holdings, halting restoration work on the State Capitol, renewed offshore oil drilling (this in one of the most eco-friendly states), and even imploring Secretary of Health and Human Services Kathleen Sebelius for increased flexibility in the use of economic stimulus money.
But why can't California just do like the federal government and leave these deficits for tomorrow or the next generation (note: this is not a recommendation)? Like most states, California has a balanced-budget provision in its constitution, put there by voters in 2004 through Proposition 58.
California's Water Shortages
As if the fiscal and economic crises in the state aren't enough, California also faces a water shortage. According to the state's Department of Water Resources, January 2009 was the eight driest on record, and its director, Lester Snow, warns in a Guardian article that this "may be the start of the worst California drought in modern history." This is particularly alarming because California's agriculture industry produces half of the country's vegetables and is home to the 400-mile-long Central Valley, the world's largest agricultural area.
Already three years into the drought, Governor Schwarzenegger declared a state of emergency in February 2009, ordering water utilities to reduce their individual water step up conservation efforts. Soon, Californians may see fewer green lawns and yellowing golf courses.
Why California Matters
If California were an independent country, it would be the world's eighth-largest economy, after Italy and before Russia. It is the single-largest economy in the United States and one of the most dependent on international trade. One might argue that it is a bell weather for the national economic health. No doubt, many countries and observers will be watching how California overcomes the many challenges it faces.
References:
"No Gold in State." The Economist. 21 May, 2009.
"Gov. Schwarzenegger Unveils Two May Revision Proposals to Address California's Budget Deficit." Press Release. 14 May 14 2009.
"California faces 'grimmest water situation ever'." Guardian.co.uk. 4 February 2009.
"California Faces Water Rationing, Governor Proclaims Drought Emergency." Environment News Service 27 February 2009.
