Report: California on ‘Verge of System Failure’

Tuesday, June 22, 2010
By Paul Martin

By: Julie Crawshaw
MoneyNews.com

Think of it as Greece on the Pacific: A place with beautiful scenery where the government spent so far beyond its means that mass layoffs, welfare reductions that leave a million children and the poor and elderly without needed services and failing infrastructure are now the norm.

California’s fiscal hole reportedly is now so large that the state would have to free 168,000 prison inmates and permanently close 240 university and community college campuses to balance its budget in the fiscal year that begins July 1.

“We are on the verge of system failure,” Jean Ross, executive director of the California Budget Project, told the Globe and Mail.

“We have to get some federal money,” Ross says. “It would be bad for the U.S. and, arguably, bad for the world to do the shock-therapy approach.”

Peter Dreier, a professor of politics at Occidental College, calls this a classic American dilemma.

“Americans expect a lot of their government,” Dreier says. “But politicians have convinced them they’re not getting what they want.”

Budget analysts say Governor Arnold Schwarzenegger has no choice but to ask Washington for bailout funds, and that Washington has no choice but to agree because not bailing out the Golden State could put the entire U.S. economy at risk.

It seems that California — which at one time had the third-largest economy in the world — is like the biggest U.S. banks: Too big to fail.

Neither Democrat Jerry Brown nor Republican Meg Whitman has offered details in their campaigns to become the state’s next governor about how to close this year’s $19 billion budget deficit or handle next year’s anticipated $37 billion deficit, the Mercury News reports.

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