Could the California "flu" spread ?
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Posted by Jim S on September 09, 2008 at 20:01:34
http://www.statesman.com/news/content/news/stories/nation/09/09/0909califbudget.htmlCalifornia's budget crisis could have ripple effect
Fiscal woes have potential to hurt economies worldwide.
IRVINE, Calif. — A budget crisis of unprecedented proportions has already pulled down the California economy and now is threatening to drag down the rest of the country as well."It's very possible that the California flu could spread not just nationally but internationally as well," said Peter Navarro, an author and economist at the University of California, Irvine. "It's a very serious and significant threat."
The budget morass is a result in part of factors that have also hurt other states: high foreclosure rates, revenue that has trickled in below expectations and enormous fuel costs. Additional factors are particular to the way California does business, including voter initiatives that tie up cash streams and the requirement that a tax increase be approved by two-thirds majorities in both legislative houses.
California isn't the only state facing budget woes this year.
But California's budget crisis and its implications dwarf the fiscal problems in any other state. California's deficit is a staggering $15.2 billion and could grow to an estimated $22 billion by next year. That's bigger than the entire budget of many states and even some small countries.
Gov. Arnold Schwarzenegger and the Legislature are deadlocked over how to solve the shortfall. As a result, the state has been without a budget for more than two months. Both sides agree that any solution will almost certainly require both tax increases and draconian budget cuts that will pull more money out of consumers' pockets and further damage the state's economy.
Whatever happens here will almost certainly reach well beyond the state's borders, some economists say.
The potential effects are far-reaching.
When consumers anywhere have less money because of higher taxes or lower incomes, they're less likely to buy cars or homes or take vacations. That can hurt auto workers in Ohio, lumber companies and home supply stores in Georgia, airlines in Texas and vacation destinations in Florida.
What makes California more important to the nation's economic health than other states is its size and influence.
With nearly 38 million residents, California's potential spending power is 50 percent greater than that of Texas.
"Whatever happens in California has huge implications for pretty much the entire country, whether it's here in Georgia or Idaho," said Sujit CanagaRetna, senior fiscal analyst with the Council of State Governments in Atlanta. "We're talking about a state economy that's the fifth- or sixth-largest economy in the entire world."
Could other states face budget problems at the same level? Probably not.
SNIP