Posted on 04/15/2009 8:30:27 PM PDT by Lorianne
The ostrich does not hide its head in the sand yet people still believe this and have vivid images of this happening. Many think that the California budget disaster is now a thing of the past because the legislature decided that they were going to do the hard thing and handoff the final decision to California residents. The ostrich does not stick its head in the sand but California politicians do this everyday. The problem concisely put is a shortage of money or over spending depending on how you look at it. The state is spending more than it brings in. An elementary math equation would explain this. However, the state legislature being polarized and unable to get anything done, decided that it would be prudent to pass along the hard decisions to voters on Tuesday May 19. If many of you recall, the state had the longest budget delay in history and never addressed the crux of the problem. The problem can only be solved by either raising revenues or deep cuts in spending. We will examine the upcoming propositions in this article but also tie them into the bigger picture of the state.
California itself is a gigantic economic engine. With a GDP of $1.8 trillion, it is by far the biggest economic state in the country. In fact, if you were to take California as a country in itself it would be the 8th largest economy in the world between Italy and Spain:
However, California itself is at the heart of the current economic mess. A state littered with the landmines of Pay Option ARMs and Alt-A loans still lingering in the background. The market is reeling like a dazed boxer from being too dependent on the real estate and finance driven economy. The state now has the highest combined tax rate but also one of the highest unemployment rates in the country coming in at 10.5 percent. Digging deeper, the real unemployment rate is hovering around 16 to 19 percent. So going back to our simple equation, those that are unemployed typically do not buy as much and instead of being taxpayers, start relying on government resources.
The state revenue structure is extremely flawed. Most of the money comes in from personal income tax and sales tax revenues: 
Now let us break down the numbers. Personal income tax makes up 49 percent of all incoming revenue. Sales tax makes up 34 percent of all incoming revenue. These two line items make up OVER 80% of a state budget that is well over $100 billion. And these are two line items that are receding like the tide. First, personal income tax is falling because a state with 2 million unemployed is not paying as much taxes. In addition, those who are still working, many on commission-based industries like real estate and finance are not pulling in salaries from boom time days. What happens? Less taxes are paid. And with less earnings people are spending less. What does this translate to in the economy?
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much more at site
Many states have balanced budget amendments in their charter. I guess those suckers will have to pony up the shortfalls of Kalifornya.
California is an economic basket case.
It is a literal demonstration of government when liberal democrats control everything, along with a liberal ‘republican’ executive branch. Of course much of the mess started under Gray Davis.
What we are seeing in California will be coming to the entire nation as the same kinds of idiots are running Washington DC without any checks or balances.
God help us!
Used to be the 6th largest - Oh how the mighty
(Dems) have helped us fall.
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