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21 July 2009

California Budget Crisis Ends

A deal reached on the California budget makes deep cuts in spending for social programs and aid to local governments. The local government aid cuts come at a time when local government revenues are already hurting, since usually predictable property tax revenues have fallen in the face of massive housing bubble collapse driven drops in property values.

"Starve the beast" deals like this one, were the goal of the sponsors of the anti-tax state constitutional measures that made it hard to get a budget deal in the first place. Supermajority requirements in the state legislature allowed Republicans to force a deal that involved social program cuts instead of tax increases.

This ends the California IOU crisis, but will likely contribute to the state's unemployment levels as government sheds workers, reduces the quality of government services in the state, leaves the state with a tarnished credit rating and is a powerful demonstration of the degree to which its budget process is dysfunctional.

More details here and here.

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