When California sneezes, does the rest of the Union get a cold? That is the question tonight, with the largest state in the U.S. now firmly projecting a $14-billion budget deficit for the coming year (more than double what was proffered a few months ago), and with the state saying it will cut that deficit dramatically via big spending cuts during this weakening economy. The upshot: A recipe for a nasty economic cocktail in 2008/9.
To his credit, Governor Arnold didn’t pretend there were any easy answers tonight during his "state of the state" speech. Because there aren’t any. Much of California’s budget is pre-allocated, leaving precious little to play with, even if he wanted to. And automatic spending increases of 7% and more make the problem worse, with the state marching in law-ordained lockstep into an increasingly ugly financial future.
About the only interesting part? Schwarzenegger didn’t blame housing and/or the economy for his problems. Good of him to pretend they aren’t playing a role, but they are playing a big one — which is why the rest of the country should be worried about what he’ll do.