California 2009 impact of budget woes

Note: This article was last updated in 2009. Click here for more recent information on state budgets and finances.

The state of California faced an approximately $42 billion dollar deficit in FY 2009 and was said to be in a "state of crisis."

Impacts

See also: State budget crisis, 2009-2010

• In early July 2009, Fitch Ratings cut cut its rating on California's long-term bonds to "BBB," two levels above "junk status." Fitch Ratings cited the state's budget and revenue crisis. According to Fitch, California was ranked the lowest-rated state general obligation credit.

• The Pooled Money Investment Board (controlled by two Democrats and one Republican) had stopped about 5,600 public works projects funded by bonds because of the state's cash crunch. On January 16, officials agreed to pay $650 million of unpaid bills on these construction projects, a month after slowing down or delaying the projects themselves. The government also decided to let 276 projects resume.

• State Controller John Chiang said on January 16 that if a solution to the budget crisis was not passed by the Legislature and signed by the Governor by February 1, he would begin delaying payments to several programs, including tax refunds, student aid, social services and mental health programs. This would amount to $3.7 billion in delayed payments in order to buy the government a few more weeks of cash flow.

• Schwarzenegger asked the federal government to "...waive or greatly streamline National Environmental Protection Act (NEPA) requirements consistent with our statutory proposals to modify the California Environment Quality Act (CEQA) for transportation projects."

• Tax refund checks to individuals and businesses that overpaid their 2008 taxes were put on hold.

• Moody's Investor Service, a national credit-rating agency, said it may downgrade California's credit rating. Moody's had already downgraded two of California's outstanding bond debts: $8.7 billion in bonds sold in previous years to help solve earlier budget deficits and $5 billion in short-term loans that the state took out last fall. California was already tied with Louisiana for the lowest credit rating among the 50 states.

• Schwarzenegger imposed two-day-a-month furloughs on the state's 238,000 government workers beginning in February. This plan would save the state $1.3 billion. State employee unions immediately filed a lawsuit against the furloughs. On January 29, a Sacramento Superior Court judge said it was okay for Schwarzenegger to go ahead with the plan. Meanwhile, the state government was still hiring; the State Personnel Board’s website listed 2,975 current vacancies with 1,172 job openings posted in the last two weeks of January.

• 250,000 homes in California were repossessed by lenders in 2008 and the pace was accelerating. As homes go into foreclosure and then are sold by the bank at, typically, a much lower price than its previous property tax assessed value, the assessed valuations of homes will decrease, often steeply. That means that in years to come, the property taxes owed on homes with declining values will be greatly reduced. This will have an impact on the budgets of school districts.

• 238,000 state employees were forced to take unpaid furlough on the first and third Fridays of each month. According to the LA Times, this "cleared the way for the biggest rollback of the state payroll in decades."

• The crisis increased California's likelihood of receiving a significant portion of any federal economic stimulus. "All told, Congressional estimates show that California’s two-year take from the House version of the bill, which was approved on Wednesday, could top $32 billion, or nearly $1,000 a resident. The State Finance Department puts the number even higher, at $37 billion." Assuming the state received this amount of money, California was where "the federal stimulus will be put to its sternest test. The infrastructure and energy projects, high-tech job creation, rural outreach and low-income benefits included in the proposal make the state a proving ground where nearly all the plan’s potential benefits, and pitfalls, converge."

• 10,000 state employees would be laid off on February 17, 2009.