The inevitable has happened, and, as tipped here previously, California governor Schwarzenegger has conceded that the state budget deficit is ballooning to record levels. From forecasting breakeven, as of last August, the state is now saying that it is looking at a whopping $14-billion shortfall in 2008, up from the $10-billion forecast of a scant few months ago.
How big is that deficit? It is the size of the California prison system budget plus the cost of running the sprawling University of California schools. Turns out that a stalling economy, plus collapsing real estate are a pretty serious whack on the state’s financial head.
Arnold says he will declare a fiscal emergency in the state, which requires the state to drop all other business and find an immediate solution. The options, however, are both simple and not-so-simple: cut spending, or increase taxes. The latter is awfully difficult to imagine, as it will require support from Republicans in the state legislature, which seems unlikely. That, of course, makes cost cuts a high probability outcome, which will be very, very unpleasant.