How the Budget Crisis has Hurt California


(James Buck)

Last July, we examined the California budget crisis, explaining the state’s massive $26.3 billion budget deficit as a result of borrowing against anticipated future revenue to meet current budget requirements. In one sense, such behavior is understandable from a political perspective. To reside in California (and particularly to own a home there) between 2002-2006 was to ride a gravy train like few others in American history. Already the world’s eighth largest economy in isolation, California’s robust market soared even higher on the wings of artificially inflated home prices. In his penetrating book The Housing Boom and Bust, economist Thomas Sowell writes that, “…at the height of the housing boom in 2005, the top ten areas with the biggest home price increases over the last five years were all in California” – this despite the fact that, “…California home prices were once very similar to home prices in the rest of the nation.” Various factors (“open space” laws and land use restrictions foremost among them) are offered as explanations, but for our purposes, suffice it to say that the eye-popping increase in home prices triggered an unprecedented wave of consumer borrowing. After all, when home prices rise at a rate of $2,000 per day (as they did in San Mateo county during March 2005), why not upgrade the kitchen or buy a new car? Needless to say, all of this economic activity sent tax receipts skyrocketing, prompting the state and municipal governments to increase their own spending.

But what went up has come down in a big way for California. With the ugly realities of what caused the budget crisis squared away, most Californians want to know what the fallout means for them personally.

Closed Parks


A major repercussion of California’s budgetary woes has been the precarious fate of state parks. In May 2009, for instance, ABC News reported that Governor Arnold Schwarzenegger had proposed, “…closing up to 220 state parks” to help reduce the deficit, “…including popular attractions for millions of visitors each year, such as a park that is home to some of the tallest trees on earth.” According to Schwarzenegger, the closings would eliminate $70 million in park spending through June 30, 2010, after which “…another $143.4 million would be saved the following fiscal year by keeping the parks closed.” Such cuts would leave enough to run only 59 of California’s 229 state parks. While conservationists are fighting to keep these parks open (the UK’s Guardian quotes Tim Gibbs of the National Parks Conservation Association as saying, “…it’s almost as if they are shooting themselves in the foot”) it is looking increasingly likely that at least a significant percentage of the parks Schwarzenegger proposes closing will indeed close. The effects of this on Californians are twofold. For one, it likely means layoffs for most or all of those who work at the parks in question. Tour guides, park rangers, food and beverage staffs and maintenance crews would all presumably be out of work, at least for so long as the parks were closed. Given the number of parks in jeopardy of being closed, these workers are in danger of becoming a substantial addition to California’s ranks of unemployed.

Second is the fact that Californians will be unable to visit or use these parks in any way. The state has a rich legacy of outdoor beauty, and if the Guardian is correct in reporting the proposal could deprive citizens of 80% of state nature reserves, it represents a a serious blow to that legacy.

Furloughs, Fewer Holidays & Layoffs of State Employees


In Connecticut or Rhode Island, the effects of a budget crisis on state employees might be negligible. But in a state as big as California, state employees comprise a significant chunk of the overall population. And regrettably, the story has not been a positive one for CA state employees since the budget crisis got into full swing. It began with Governor Schwarzenegger’s December 2009 executive order mandating the adoption of, “…a plan to implement a furlough of represented state employees and supervisors for two days per month, regardless of funding source. ” By July 2009, that had increased to three days out of the month, good for a savings of $1.3 billion according to the New York Times – which is roughly equivalent to a 15% pay reduction. Schwarzenegger also proposed eliminating the Columbus Day and Lincoln’s Birthday holidays, and changing overtime pay rules so that leave time would no longer be compensated by the state.

Outright layoffs have also occured and been proposed. reported on January 7 2010 that state employees are, “…likely to continue to feel the squeeze” as the Governor prepares his 2010-11 state budget. The mandatory furlough system (which affects 201,000 state workers presently) could be replaced in the new budget, substituting “…layoffs and a 5% pay cut” in their place. Californians will no doubt be keeping a close eye on the budget Governor Schwarzenegger ultimately signs, particularly as regards its effect on the state’s many employees, their work hours, benefits and salaries/wages.

Slashed Education Funding

(A.V. Lawn Service & Landscaping)

State education funding has also taken a severe hit in the aftermath of the budget crisis. Reporting in depth on the specifics of the state budget passed in July 2009, the New York Times revealed that “…the K-12 education budget, which also includes community colleges, lost $6.1 billion from its roughly $58 billion base.” On top of that, “…higher education took a $2 billion hit.” Given the importance of education to any state, it’s not difficult to imagine the negative impact these cuts may engender., for instance, quotes California Superintendent of Public Instruction Jack O’Connell as saying, “…it’s the students of color, students who are poor, students who are learning English, or coping with learning disabilities, who need the most assistance. And equal cuts across the school, or across a school district, will be inequitably felt by them.” O’Connell speaks for many in California who fear that layoffs and the resulting larger class sizes will equate to inferior class experiences for students.

Layoffs have also been prevalent at state universities. The blog LayoffTracker stated that University of California, for instance was, “…looking at cutting salaries for all faculty and staff by 8 percent as one option in reducing an expected $800 million funding shortfall” as recently as last June. This and similar cuts around the state prompted universities to raise their tuition, which in turn prompted outrage from the public. Time Magazine reported in November 2009 that,”…University of California regents voted this week to increase tuition a whopping 32% to more than $10,000 annually — a three-fold increase in a decade.” The result was unbridled mayhem. Remarking on the protests that followed, Time recalls that “…about 2,000 students from the 10-campus system confronted riot police, shouted slogans and blocked building exits” in something reminiscent of “… a scene out of the angry 1960’s.”

Time also interviewed students about the impact of education budget cuts on them personally. UCLA sophomore Chimela Okwandy said, “…some of my friends wont be here next quarter” before concluding that ,”…before it was a question of how smart you were. Now, it’s do you have enough money to pay for school.” Outgoing California State University System chair Jeff Bleich goes even further, claiming that, “…California is on the verge of destroying the system [of higher education] that once made this state great” and insisting that, “…for every dollar the state invests in a CSU student, it receives $4.41 in return.”

The Takeaway

Californians from all walks of life have and will continue to experience hardships as a result of the budget crisis. Indeed, everyone from casual nature lovers to state employees to professors and students (and their parents) seem to be shouldering burdens from the fallout. One hopes that California tightening its belt and paying off its debts will be a precursor to economic recovery – sooner rather than later – and perhaps lead future generations of politicians to be more prudent during booms like the one between 2002-2006.

Leave a Reply