All of U.S. to share in California woes
By JULIET WILLIAMS
SACRAMENTO, Calif. — California faces a $24 billion budget shortfall, an eye-popping amount that dwarfs many states' entire annual spending plans.
Beyond California's borders, why should anyone care that the home of Google and the Walt Disney Co. might stop paying its bills this week?
Virtually all states are suffering in the recession, some worse than California. But none has the economic horsepower of the world's eighth-largest economy, home to one in eight Americans.
California accounts for 12 percent of the nation's gross domestic product and the largest share of retail sales of any state. It also sends far more in tax revenue to the federal government than it receives — giving a dollar for every 80 cents it gets back — which means Californians are keeping social programs afloat across the country.
While the deficit only affects the state, California's deepening economic malaise could make it harder for the entire nation's economy to recover.
When the state stumbles, its sheer size — 38.3 million people — creates fallout for businesses from Texas to Michigan.
"California is the key catalyst for U.S. retail sales, and if California falls further you will see the U.S. economy suffer significantly," said retail consultant Burt P. Flickinger, managing director of Strategic Resource Group. He warned of more bankruptcies of national retail chains and brand suppliers.
Even if California lawmakers solve the deficit quickly, there will likely be more government furloughs and layoffs and tens of billions of dollars in spending cuts.
Californians have already been scaling back for months as the state's unemployment rate climbed to a record 11.5 percent in May. Increases to the income, sales and vehicle license taxes approved by lawmakers and Gov. Arnold Schwarzenegger in February acted as a further drag on spending.
Personal income declined in California in 2008 for the first time since the Great Depression, and income tax revenue fell by 34 percent during the first five months of this year.
Government workers face the possibility of three-day-a-month furloughs, teachers are being laid off, lower-income college students stand to lose their grants and hundreds of thousands of poor children could go without health care.
Economist Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto, has argued for another nationwide stimulus package to help all states avoid further cuts to social programs intended to help vulnerable people.
"If we are the bellwether, I would have Californians reach out to other states and really make a plea for national assistance," Levy said. "The recession is not our fault."