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alstry (< 20)

California Bankrupt??????



July 24, 2008 – Comments (6)

Gov. Arnold Schwarzenegger is planning to cut the pay of about 200,000 state workers to the federal minimum wage of $6.55 an hour until a budget is signed, according to a draft of the governor's order obtained by The Times.

Administration officials said Schwarzenegger is expected to sign the order early next week as part of an effort to avert a cash crisis. The controversial move, likely to be challenged in court by public-employee unions, would save the state about $1 billion a month, the officials said.

California's budget deficit is currently estimated at $17-20 Billion.  Not too long ago the estimate was only $4 Billion.  My guess as the year goes on and revenues slow even further, the deficit will likely exceed $30 billion.

If cutting wages to minimum only saves $1 Billion per month, than it is not possible to balance CA's budget even if it fired all 200K workers.

Unlike the Federal Government, CA does not own a printing press.  Under current financials it will be very difficult for CA to borrow money.  The state is basically insolvent and has few places to turn without taking very draconian measures.

It will be interesting to see what happens.  Expect what is happening in CA to happen in many other guess is that most states will be insolvent by the next fiscal year.

America is breaking hard.  Construction is shutting down accross the country.  Here is some evidence from Georgia:

Just 198,450 square feet of industrial space is currently under construction in the northeast Atlanta market, which includes Gwinnett, according to CoStar Group, a real estate tracking firm.

That area hasn't seen anything less than 2 million square feet under construction at any one time in the last two years, said Richard Poland, a CoStar analyst.

"It's just a screeching halt on construction," he said.

A similar story was published for Orange County a few days ago. 

If there is no building, there is no jobs and no taxes being paid.  Nothing is being purchased.  Nothing is being designed.  Nothing is being insured. 

The beat goes on as it gets slower and slower.  Round and round she goes, when it completely stops nobody knows...... 

6 Comments – Post Your Own

#1) On July 25, 2008 at 12:45 AM, zygnoda (< 20) wrote:

I think this is especially important as california is a huge state and an enermous economy.   Also, like you said the problems will start showing up in other states budgets as well.    Then you have this  Moody's says Fannie, Freddie won't endanger US Aaa rating 

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#2) On July 25, 2008 at 2:38 AM, QualityPicks (78.41) wrote:

Amazing all the problems we have and we are not in a recession yet :)

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#3) On July 25, 2008 at 9:32 AM, alstry (< 20) wrote:

Unlike the federal government, most states are required to balance their budgets. Most have so far resisted tax increases, instead opting for raising prices on things like tolls and college tuition, and cutting back on services like education and health care. Some chose one-time measures such as tapping rainy-day funds that were built up in flusher times. That could lead to future cutbacks if the economy doesn't bounce back in coming months.....

The housing slump, now well into its second year, is the primary culprit. The decline in home sales has cut into real-estate transfer taxes. Construction spending and employment have declined. Fewer home sales have resulted in lower sales of home furnishings and washing machines, eating into sales taxes.

Of course, for many states, today's budget woes stem at least partly from expanding their services during the good times and not planning enough for the inevitable downturn.

At the same time, costs are rising. Over the past several years, many states have taken over more of their K-12 education funding from local governments, while many others have expanded Medicaid.

Revenues evaporating.....especially as of recent, and costs exploding......we already have HUGE deficits.......ANYONE LOOKING FORWARD?????

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#4) On July 25, 2008 at 10:45 AM, dwot (28.88) wrote:

I saw this yesterday, awful, absolutely awful.  And I am willing to bet that the 200,000 affected are already a part of the throw away economy.

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