CALIFORNIA STATE BUDGET CRISIS

California State Budget Crisis

California State Budget Crisis

Last July, we examined the California budget crisis, explaining the state's massive $26.3 billion budget deficit as a result of borrowing against anticipated future revenue to meet current budget requirements. In one sense, such behavior is understandable from a political perspective. To reside in California (and particularly to own a home there) between 2002-2006 was to ride a gravy train like few others in American history. Already the world's eighth largest economy in isolation, California's robust market soared even higher on the wings of artificially inflated home prices. In his penetrating book The Housing Boom and Bust, economist Thomas Sowell writes that, “…at the height of the housing boom in 2005, the top ten areas with the biggest home price increases over the last five years were all in California” - this despite the fact that, “…California home prices were once very similar to home prices in the rest of the nation.” Various factors (“open space” laws and land use restrictions foremost among them) are offered as explanations, but for our purposes, suffice it to say that the eye-popping increase in home prices triggered an unprecedented wave of consumer borrowing. After all, when home prices rise at a rate of $2,000 per day (as they did in San Mateo county during March 2005), why not upgrade the kitchen or buy a new car? Needless to say, all of this economic activity sent tax receipts skyrocketing, prompting the state and municipal governments to increase their own spending.

But what went up has come down in a big way for California. With the ugly realities of what caused the budget crisis squared away, most Californians want to know what the fallout means for them personally.

A major repercussion of California's budgetary woes has been the precarious fate of state parks. In May 2009, for instance, ABC News reported that Governor Arnold Schwarzenegger had proposed, “…closing up to 220 state parks” to help reduce the deficit, “…including popular attractions for millions of visitors each year, such as a park that is home to some of the tallest trees on earth.” According to Schwarzenegger, the closings would eliminate $70 million in park spending through June 30, 2010, after which “…another $143.4 million would be saved the following fiscal year by keeping the parks closed.” Such cuts would leave enough to run only 59 of California's 229 state parks. While conservationists are fighting to keep these parks open (the UK's Guardian quotes Tim Gibbs of the National Parks Conservation Association as saying, “…it's almost as if they are shooting themselves in the foot”) it is looking increasingly likely that at least a significant percentage of the parks Schwarzenegger proposes closing will indeed close. The effects of this on Californians are twofold. For one, it likely means layoffs for most or all of those who work at the parks in question. Tour guides, park rangers, food and beverage staffs and maintenance crews would all presumably be out of work, ...