Page last updated at 13:42 GMT, Wednesday, 18 February 2009

California's budget worries grow

By Rajesh Mirchandani
BBC News, Los Angeles

Job seekers and recruiters mingle at a party designed to exchange details in Beverly Hills, California
Job searching 'pink slip' parties could become more common in California

A recorded phone message at the California Department of Motor Vehicles tells you: "Effective from February 2009, the offices will be closed on the 1st and 3rd Friday of every month."

It is just one of the measures the state has taken in the face of a crippling budget crisis, closing state agencies and forcing employees to forgo wages for two days a month.

But California's budget woes go much further:

  • Hundreds of infrastructure projects - road repairs, water maintenance, etc - have been shelved, along with the thousands of jobs they promised;
  • counties and state suppliers have not been paid for services they provide;
  • thousands of Californians who were looking forward to tax refunds, have not received them and will not do so in the foreseeable future.

Angel Perez, a 33-year-old education worker from Pasadena, found out recently he was not getting a rebate of more than $2,000.

"It makes me pretty angry," he says. "I was counting on that money to pay off a credit card debt. So the longer I have to wait the more I am paying in interest charges... and I have no clue when the money is coming."

California faces a budget shortfall of nearly $42bn.

We would have trouble making car payments and rent payments
State worker threatened with redundancy

A combination of factors linked to the state's size and power have led to a situation where the eighth largest economy in the world cannot pay its bills.

California generates nearly 13% of US GDP, but its huge manufacturing sector has taken a massive hit in this recession. Unemployment is heading towards 10% (compared with about around 7.5% nationally).

California's property boom has been replaced with an almighty crash: 28% of all US properties at some stage of the repossession process are in the state.

Taxes levied on property sales have consequently declined; people are spending less, so sales tax, levied on most goods, is down too; and projected income tax receipts are much lower.

The result? Califonia's credit rating has been downgraded to the lowest of any US state, making it almost impossible to borrow money.

Political deadlock

Governor Arnold Schwarzenegger proposed a solution that includes more than $15bn in spending cuts and more than $14bn in tax rises, including a 1% rise in sales tax and 12-cent-a-gallon (2p a litre) increase in the state's gasoline tax.

California Governor Arnold Schwarzenegger holds a news conference on 1 December
Mr Schwarzenegger has a plan to dig California out of its fiscal hole
But Republican lawmakers say it is wrong to raise taxes during a recession.

So state politicians have been deadlocked. Some have even been sleeping in the State Capitol Building, as debates rage through the night.

The governor's warning that 20,000 state employees will be laid off may be a way of prodding lawmakers to reach agreement.

Mr Schwarzenegger says "pink slips" (redundancy notices) will be sent out to junior staff whose posts are threatened.

Anne - not her real name - has worked as an administration assistant in the California Department of Corrections for 10 months. She knows she is in line for a "pink slip".

Any redundancy process may take six months, but she is still worried.

Anne is 34 and has a 17-year-old son who lives with her in Sacramento. They look after her son's baby for half the week.

She is the only breadwinner. If she lost her job "we would have trouble making car payments and rent payments", she says.

Concerning state lawmakers failed efforts to reach a budget agreement, Anne says: "I hope they come to a deal but I don't think they are competent enough.

"They have screwed it up so far. It's a horrible situation. So many peoples' lives are on the line because these guys cannot come up with a good decision."

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