How did California solve its budget crisis – The most populated state in the USA had a terrible budget crises from 2008-2012 and was heavily affected by the financial crisis. However in 2013 a small surplus was announced suggesting that the state had finally managed to unlock some of the shackles and was climbing up the mountain rather than being dragged down. How on earth did they do it?
Of course it’s subjective and can be argued to be due to a lot of things so lets look at some of the actions during the course of the crisis.
Here is a rough breakdown of events throughout 2009, sourced from Wikipedia.
Labor organizations filed lawsuits and took other actions in an attempt to stop the furloughs of state workers. On Jan. 29, 2009, a Superior Court Judge ruled that Schwarzenegger had emergency furlough power, and on February the 3rd District Court of Appeal in Sacramento said the appeal to the decision came too late and was incomplete, so judges were unable to determine if a halt to state furloughs is legally justified. As part of the furlough, various state offices were closed on the 1st and 3rd Fridays of every month from February 1, 2009 through June 30, 2010, which was estimated to save the State $1.3 billion.
By February 2009 California State Controller John Chiang delayed $3.5 billion in state payments (such as state tax refunds) for at least 30 days because the state was experiencing cash flow difficulties.
The state legislature passed a budget in February 2009 that depended on the voters approving tax extensions and money redirection into the general fund, which in May the voters did not approve. Governor Arnold Schwarzenegger then proposed $16 billion in cuts and also borrowing money from local governments. In the legislature, the Republicans agreed to lower the income of state employees, but the Democrats resisted these proposals and suggested increasing fees to be paid by smokers and oil wells. Neither party agreed to borrowing money from local governments.
On April 1, 2009, the state sales and use tax was temporarily increased by one percentage point.
The state had been selling bank-guaranteed short-term notes to get cash, but in June 2009 its credit rating was lowered. When the state asked for a federal guarantee of the notes, the Obama administration said it had no legal authority to back state notes and that the state should solve its own problems.
On July 1, 2009, Schwarzenegger ordered state workers to take a third furlough day each month. On July 2, 2009, the state government began issuing IOUs to meet its short term financial obligations. Five days later, Bank of America, Citigroup, Wells Fargo, and JP Morgan Chase announced that they would stop accepting IOUs by July 10. Fitch Ratings dropped California’s bond rating from A-minus to BBB.
On July 24, 2009, the state government passed a budget that included $15 billion in service cuts, including $8.1 billion in education cuts. Eliminated from the final plan included proposals to borrow money from city and county governments and to drill for oil off the coast of Santa Barbara. Chiang announced in August 2009 that the IOU program would end the next month and that California would pay off 327,000 IOUs worth almost $2 billion.
The budget crisis led to cutbacks and many layoffs at state universities in California. In order to curb the budget shortfalls, the California Board of Regents voted on a 32% raise in all tuition costs for state universities. This led to the 2009 California college tuition hike protests.
New Republic said that the climb up to the current position was a large consequence of Democratic activists unshackling the state from impossible rules and said:
“voter mobilization helped elect Democrats to all statewide offices, including the Governor’s mansion. Voters also passed Prop 25, a critical measure for reformers, allowing for a simple majority vote to pass the budget. Majority vote budget initiatives had been on the ballot before, but after years of chaos and minority hostage-taking, it was a far easier sell for reformers. Adding a “no budget, no pay” rider that would withhold payment to legislators if they failed to pass a budget helped provide accountability and broaden support.”
Read more here.
A really interesting case and proof that no matter how hard things get recovery is absolutely possible.
- How did California solve its budget crisis