Looming Recession Update: Across-the-Board Emergency Budget Cuts Edition

by David Dayen [courtesy of Calitics - Front Page]

"I made Kaleefornia a fantastic place for business!"

Gov. Arnold Schwarzenegger on Monday ordered all state departments to draft plans for deep spending cuts after receiving word that California's budget is plunging further into the red -- largely because of the troubled housing market [...]

Economists say the state's declining fortunes are due in large part to the shakeout in the housing market and a volatile revenue system overly reliant on income taxes [...]

[Chris Thornberg, a principal with Beacon Economics] said the trouble in the housing sector is reverberating through the entire state economy, causing income and consumer spending to decline. He noted that unemployment is up a full percent since the beginning of the year, a jump that typically foreshadows recession.

"What's happening right now is big in terms of the revenue hit," he said. "The numbers are coming in way below where they should be."

And don't forget, one of the state's top industries could be shut down for months. 

When you balance the budget on borrowing, have no flexibility in the budget structure, and then recession hits, there's absolutely nowhere to go.  We have severe money gaps and no way to brek through the draconian 2/3 measure to increase revenue for vital services.  In this environment, the first order of business should be an immediate recalibration of the tax structure, not cutting a budget that's already down to the bone.  But we all know that's not going to happen.  It's much better for the fortunes of those "leaders" who got us into this mess to tout an insurance company giveaway as "getting something done" so they can get themselves re-elected.

This state is in big trouble.