Within a matter of weeks, the great state of California will be out of money. For months state leaders have warned of the yawning $24 billion budget deficit; even exploiting the deficit they created in a failed attempt to scare voters into increasing their taxes in the May special election. The proposed tax increases and budget gimmickry were soundly rejected by voters, sending a clear message to Sacramento that Californians will no longer finance the bloated, inefficient government’s insatiable appetite for more tax dollars. Now the day of reckoning is upon California, and how the Golden State resolves this massive problem will impact the entire nation.
June 15 is the constitutional deadline for the legislature to pass a budget for the new fiscal year, which begins July 1. Lawmakers have historically ignored this deadline—habitually disregarding the Constitution’s authority—but Governor Arnold Schwarzenegger has publicly warned that “after June 15, every day of inaction jeopardizes our state's solvency” and its ability to pay its bills.
The legislature’s Budget Conference Committee has been working to cut some spending to try and cover the $24 billion budget shortfall, but Democrats still haven’t given up on raising taxes and fees, despite voters’ resounding rejection of such a short-sighted fix. The eyes of the nation will be on Sacramento in the coming weeks as politicians quibble over how to pay for their irresponsible spending, a microcosm of the situation in Washington, D.C.—but without the option to create more money via a printing press.
Economic experts are predicting America will lose its AAA credit rating due to the massive debt its government continues to incur; adding California’s debt will certainly tip the scales against America’s struggle to hang on to any vestige of credibility in the international marketplace.
The fate of the world’s 10th largest economy is inextricably linked to America’s overall economic fate. Could America’s already fragile economy absorb California’s debt? With the federal government already trillions in debt, what’s another $24 billion? The problem is not the amount of debt, but the precedent it will set if the federal government is forced to bailout one of the country’s largest states.