Northern Country

How globalization changes capitalism, the economy and politics

California poised to miss budget deadline

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California lawmakers are trying to address a budget shortfall of $24.3 billion as a constitutional deadline approached yesterday. Republicans and Democrats cannot agree on how to close the budget gap. While Democrats want to increase tax to create revenue Republicans under Gov. Schwarzenegger want to see spending cut drastically and refuse to increase taxes. Schwarzenegger wants to cut all welfare programs for the needy.

What makes this impasse so difficult is a law dating back 30 years, Preposition 13, which requires a 2/3 majority in the legislature to increase taxes. This gives the Republican minority the chance to block any such legislation.

Missing the constitutional deadline is no surprise for California. It has done so almost every year in the past 20 years. What makes this different is the current economic and financial crisis that is crippling Wall Street and the nation. What has worked for the past twenty years does not necessarily have to work this time. California already has the lowest credit rating of any US state. In this time of economic woes of historic proportions this might be the stroke that brakes the camels back.

In February S&P cut California’s credit rating on $46 billion of its general obligation bonds from ‘A-plus’ to ‘A’. This is the lowest rating of all 50 states. Most states are rated ‘AA’ or even ‘AAA’. S&P warned:

"Despite what we consider the state’s strong longer-term economic fundamentals, we judge prospects for an imminent or brisk economic and revenue recovery to be unlikely."

Written by Alfred

16. June 2009 at 9:14 am

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