🚀 go-pugleaf

(smile)
California Is at Fiscal Brink
By JOHN M. BRODER

[L] OS ANGELES, Dec. 8 — When times were good and billions of dollars in
income tax payments were pouring in from high-tech millionaires, California
lavished raises on state employees, expanded health care benefits for the poor,
cut taxes on car licenses and invested heavily in education and transportation.
Advertisement
[Alt Text]
<http://graphics.nytimes.com/images/misc/spacer.gif>


Those days are over.

With its huge economy stalled and state revenues plunging, California has
descended into its worst budget crisis in a decade and is now facing an
excruciating round of budget cuts and possible tax increases.

State officials are proposing deep reductions in education, health services and
other programs to deal with a budget shortfall that could total $25 billion in
the next 18 months.

"That's a hole so deep and so vast that even if we fired every single person on
the state payroll — every park ranger, every college professor and every
Highway Patrol officer — we would still be more than $6 billion short," said
the Assembly speaker, Herb J. Wesson Jr., a Democrat.

Gov. Gray Davis announced a series of steps on Friday intended to save $10.2
billion to plug a deepening hole in the current budget and to serve as a
prelude to even deeper cuts in next year's. Mr. Davis proposed freezing pay for
state workers and warned of large-scale layoffs. As many as 200,000 people
could lose their health coverage under the state Medi-Cal program. Payments to
public schools and universities could fall by more than $3 billion.

And that is just the start. In January the governor must propose a budget for
the fiscal year beginning in July that needs to address an expected $15 billion
shortfall in revenues. Mr. Davis has not yet proposed tax increases, but given
the deficit magnitude, they appear inevitable.

Other states are confronting similar problems, but California's size and the
bursting of the dot-com bubble make the problem worse here.

The political combatants are entrenching along familiar ideological terrain.
The powerful employee and teachers unions are vowing to resist the pay cuts and
job losses that the governor's plan will require. Republicans have pledged to
reject any new taxes, saying that the Democratic governor and Legislature spent
their way into the current morass and must find program cuts to claw their way
out.

Democrats respond that the budget shortfall results chiefly from a severe drop
in revenue from taxes on capital gains and stock options from the market run-up
of the late 1990's and that those lost revenues must be replaced with new
taxes.

In 2000, the state received $17 billion from taxes on capital gains and the
cashing in of stock options, much of it from the technology industry. State
officials estimate that the take from such taxes this year will be less than $5
billion.

California prides itself on its progressive income tax, with people earning
high incomes paying a huge share of state taxes. The top 10 percent of filers
pay 75 percent of personal income taxes. But when their income drops, as it did
when the technology boom went bust in early 2000, the state treasury crashes.

"Nobody expected the loss of revenues due to the drop in the stock market to be
as severe as it has been," said B. Timothy Gage, the state finance director.
"Nobody anticipated the truly staggering extent of the hit we took. States have
not seen such drops since World War II."

California, which generates $1.3 trillion in annual output, is the fifth or
sixth largest economy in the world. (The state is just above or just below
France, depending on the state of the Euro.) The current general fund budget of
$78 billion represents about one-sixth of all state spending nationwide, but
its current-year budget shortfall of $6.1 billion is fully a third of the
cumulative state deficits across the country, according to a survey by the
National Conference of State Legislatures.

Only five states — Alaska, Arizona, Colorado, Idaho and Nevada — are in
worse fiscal shape than California as measured by deficits as a percentage of
the budget. In dollar terms, no other state comes close.

 It's not an assault weapon , it's a "HOMELAND DEFENSE WEAPON" .