There are signs that California’s economy is recovering (a little), but a tepid return to normalcy won’t be enough to save the state’s horrible fiscal position.
Remember, politicians in California have been basing the size of the government on bubble-era tax revenues for years (first with the .com bubble, and then real estate). So for the state to be able to afford itself, it really needs a bubble in something big, and that doesn’t seem to be in the cards.
Alas, we could be looking at a repeat of the crisis as soon as the spring!
WSJ: The state’s Democratic controller, John Chiang, said on Wednesday that California could have trouble making payments as early as spring 2010 if tax revenue remains below forecasts, among other reasons.
Until at least June 2015, the report projected California will face annual budget shortfalls of about $20 billion.
Facing so much fiscal red ink, Californians could see another round of spending cuts and tax increases. Since September 2008, state lawmakers have enacted three budgets to close a cumulative $77 billion shortfall. They closed the gap largely through spending cuts and tax increases, but also with federal-stimulus funds and one-time accounting gimmicks. At one point, California was so close to insolvency it was forced to issue IOUs.