California Budget Deficit Nears $35 Billion

December 18, 2002
By Michael Kahn

SAN FRANCISCO (Reuters) - California's budget gap has soared to a staggering $34.8 billion, Gov. Gray Davis announced on Wednesday, leaving the nation's most populous state facing a fiscal crisis more perilous than expected.

Davis, a Democrat, said the deficit over the next 18 months is up from a previously estimated $21 billion mainly because of a nosedive in personal income tax revenues.

The size of the deficit, about $1,000 for each of the state's 34 million residents, is bigger than the entire budget of most other U.S states and will make it difficult for lawmakers to find ways to fund critical state programs.

The governor said he was releasing the figures earlier than normal to highlight the need for lawmakers to quickly get a handle on the problem, which could spawn tax hikes and a downgrade of California's credit rating.

The bulk of the shortfall, $17.7, billion, was due to lower-than-expected tax revenue, the governor said. Another $12.6 billion resulted from one-time deficit fixes in the current budget and another $4.5 billion came from required spending increases and loss of federal funding.

"(It) is far more than any expert predicted," Davis told reporters. "A shortfall of this size represents 45 percent of the current year general fund."

California, like many U.S. states, is mired in a fiscal crisis due to the slack economy and weak stock market, which have dried up revenues flowing into state coffers.

The dot-com bust, however, made matters even worse in California, which is home to Silicon Valley and has an economy about the size of France's. The Internet boom of the 1990s contributed to multibillion dollar surpluses for the state, leading to spending increases on programs such as education and social services that now face the ax.

PROBLEM KEEPS GETTING BIGGER

The massive budget deficit could also be bad news for the state's credit rating, which is already on a negative outlook by major Wall Street agencies.

for full article see
http://www.washingtonpost.com/wp-dyn/articles/A9028-2002Dec18.html