California Finances Plummet Less than Three Months after Budget Passage

From WSWS.org:

California finance officials have announced that the state has a current budget deficit of $1.1 billion. News of the shortfall comes less than 10 weeks after a balanced budget deal was reached by Republican Governor Arnold Schwarzenegger and the State Legislature.

An October report released by State Controller John Chiang announced that the latest budget deficit was mainly due to a large drop in third quarter income tax collection; revenues were 11 percent lower than initially projected.

The California Department of Finance is also expecting a deficit of $7.4 billion at the start of fiscal year 2010-2011, which begins next July. This could climb to as high as $20 billion by the start of fiscal year 2011-2012.

Loss of tax revenue due to the economic crisis and widespread unemployment and wage reductions is not the only component of the budget deficit. The state’s fiscal health is also largely dependent upon the willingness of outside investors to purchase its municipal bonds and other securities.

As recently as last summer, the state’s credit rating was lowered by all three of the largest agencies, Fitch, Moody’s and Standard & Poor’s, to the lowest in the nation. The state effectively became insolvent at that time and was reduced to handing out IOU’s instead of actual cash payments to vendors, tax refund recipients and others.