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California Faces Day Of Reckoning

Gov. Arnold Schwarzenegger speaks on the status of the state budget at the California Center for the Arts on June 12, 2009 in Escondido, California.
David McNew
Gov. Arnold Schwarzenegger speaks on the status of the state budget at the California Center for the Arts on June 12, 2009 in Escondido, California.

California Budget Delays Continue

Times are tough all over in California, even for the superrich. According to the Los Angeles Business Journal, the city's 50 wealthiest people lost a combined total of $32 billion last year — that's an all-time record.

Across the state, unemployment is in double digits, home foreclosures have taken a huge toll on scores of neighborhoods, and thousands of public school employees are getting pink slips. State parks and beaches may close for lack of money to keep them open, and welfare and public health programs are about to be slashed.

It's the Golden State's biggest fiscal mess since the Great Depression.

NPR focuses on the problems — and some possible solutions — in a multipart series, California in Crisis. Our correspondents have joined with member station reporters across California to provide an incisive look at some of the key areas that are failing. We'll also hear from an assortment of experts with ideas on how to fix what's wrong.

For such a wealthy place, California has a hard time dealing with money. The state is heavily dependent on personal income taxes, which account for more than half of the general fund.

In good times, money flows like water —but it dries up quickly when the economy sours. And there's the perennial question about Proposition 13, passed 30 years ago as California homeowners revolted against skyrocketing property taxes. Prop 13 put a cap on those tax hikes, but it also made it much harder for state lawmakers to pass any tax increase.

Raising taxes is always hard, because every tax hike has to pass by a two-thirds margin — a virtually impossible feat in the politically stratified California Legislature.

In size, California's economy is roughly comparable to Italy's. But unlike a country, the state can't run at a deficit or print cash to free itself from crisis. Will the federal government ultimately be forced to come to the rescue? And if not, will a bankrupt California drag down the national economy?

In the past, California has been able to use bookkeeping magic and strategic borrowing to balance its budgets. But this isn't like the state's other fiscal battles, which have always gotten resolved at the eleventh hour.

With the worst credit rating in the country and no financial miracles on the horizon, California is running out of both time and money. It may not be able to borrow its way out without federal loan guarantees.

And any help from Congress and the White House, if it comes at all, is bound to have many strings attached — to send a signal to other troubled states tempted to ask for a bailout.