California faces financial meltdown as debt grows by $1.7m an hour
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For California’s Republican Governor Arnold Schwarzenegger, the crisis represents a humiliating final act to his second term. Mr Schwarzenegger, 61, came to power in 2003 because of an almost identical financial calamity, which resulted in his Democratic predecessor, Gray Davis, being “recalled” from office.
At the time Mr Schwarzenegger promised an end to California’s tax-and-spend policies and runaway expenses, yet over the past four years of his administration the state’s budget has grown by 40 per cent to $144.5 billion. Thanks to the housing crash, recession and credit crunch, the state can no longer afford this with tax collection.
As the crisis continues and California’s credit rating deteriorates, the cost to the state of borrowing keeps rising — a process that could ultimately cause the same kind of deadly spiral that this week tipped the Chicago-based publisher of the Los Angeles Times into bankruptcy.
Mr Schwarzenegger is proposing the same kind of emergency tax rises that in 2003 turned Mr Davis into a pariah. He has suggested a 1.5 per cent increase in sales tax — the equivalent of Britain’s VAT — and a tripling of the car tax. When Mr Schwarzenegger first ran for office, he did so on a promise to revoke a similar car tax increase proposed by his predecessor.
So far, however, Republicans in California’s legislature have refused to go along with the proposals and Democrats have refused to cut government programmes, hence the stalemate.
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http://www.timesonline.co.uk/tol/news/world/us_and_americas/article5327474.ece