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State struggles to pay its bills

Posted: February 18, 2009 8:26 p.m.
Updated: February 18, 2009 5:27 p.m.
NEW YORK (AP) - California, home to celebrities on sandy beaches and dot-com millionaires, is having trouble paying its bills.

The U.S. state known for sunshine, but also for earthquakes, wildfires and mudslides, is facing a disaster of another kind. The economic crisis has sapped the world's eighth-largest economy of tax revenue, leaving it with a $42 billion budget deficit over the next year-and-a-half.

Republican lawmakers are refusing to approve a compromise fix-it plan of new taxes and deep spending cuts, and even movie star Gov. Arnold Schwarzenegger's famous powers of persuasion have failed to convince members of his own party to back any tax increases. So, the high-tech state waits in financial limbo.

Schwarzenegger has started the process of laying off up to 10,000 state workers and forced some 200,000 government employees to take unpaid time off. The state has put the brakes on hundreds of building projects and has stopped issuing checks to taxpayers owed refunds.

"I think everyone is weary and frustrated, and many are quite insecure," said Jim Hard, a vice president at the largest state employee union, whose members are seeing their pay cut through the furloughs.

On Wednesday, Democrats in the state capital of Sacramento were hoping to secure the single additional vote needed to plug the deficit, but that vote looked unlikely. Hopes for a quick resolution faded a day after Senate Republicans ousted their own leader, potentially derailing a compromise plan negotiated for months.

How did the Golden State get so tarnished?

California has a tax base that relies heavily on the rich, but even they have been hit hard by a world economy in turmoil. The state's tax revenues have plunged, leaving lawmakers holding the bag on promises they made when times were good.

Because California's budget problems are so severe, it has been downgraded by the major credit rating bureaus - with Standard & Poor's putting its bond rating at the lowest in the United States. That leaves its borrowing options limited, particularly when there is already a worldwide credit crunch.

Add to that ballot initiatives passed by popular vote that designate funding for certain projects without saying how the money will be raised to pay for them. That forces money to be taken from core state services, such as education and health care, and limits budgeting wiggle-room for lawmakers.

But most of all, observers point to a rule that requires a two-thirds majority of lawmakers in both houses of the state Legislature to pass budgets. California is one of only three states in America, along with Arkansas and Rhode Island, to require such a high threshold. It has proved to be a nearly impossible hurdle, as conservative Republicans and liberal Democrats rarely agree on the most important issues that come before them.

"We are so big, we are so diverse, getting two-thirds of Californians to agree on anything is crazy," said Jean Ross, executive director of the California Budget Project, a nonpartisan organization that advocates for the poor and working class. "We have parts of California that look like Kansas, and we have L.A. We have really conservative parts, then we have San Francisco."

But Jerry Nickelsburg, an economist at the UCLA Anderson School of Management, put much of the blame squarely on poor planning by legislators. The state may have some of the richest and most famous residents in the world, but their taxes are not always reliable. A movie star could make $20 million one year, and nothing the next, and the state budget should reflect that, he said, by spreading it out year over year "so we don't think we have more than we have."

A movie star or big corporation might say, "'It's not my fault the Legislature didn't know how to use the check I wrote,'" he said. "The wealthy have already ponied up and the state blew it."

Even if lawmakers do pass the two-year budget fix in the days ahead, deep cuts are expected to education, health care, social services and programs that help the poor get off welfare. But trend-watchers don't expect the wealthy, beautiful and famous to quit showing up.

"If you have a lot of money, where do you want to live?," Ross said, quoting her Midwestern mother: "'You see the Rose Bowl and the blue sky, and it looks mighty good.'"

Copyright 2009 The Associated Press


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