Bleeding Red Ink in California

July 10, 1992

And you thought Maryland had problems with its $250 million budget deficit. Look at California's woes: an $11 billion flow of red ink as the fiscal year began July 1. That's equal to the entire gross national product of Ecuador or Tunisia.

This huge deficit follows a $14 billion budget gap last year that was never really closed. It's so bad the state is handing out IOUs to workers and vendors. They haven't done that in the Golden State since the Depression.

The situation in California is bleak. In the past two years, 700,000 workers have lost their jobs -- one-third of all U.S. job losses in that period. The state has 1 million people unemployed. Two of its high-growth industries, aerospace and defense, have been hard so hit by the recession and the end of the Cold War they may never fully rebound. Yet the state has one of the most generous social service programs in the country, which now poses an impossible drain on the state treasury.

Compounding matters, there's a bitter political deadlock in the state capital. Gov. Pete Wilson and the Democratic legislature are in no hurry to find a compromise, even as more than $20 million in IOUs are issued and the state's bond rating is cut, costing taxpayers an extra $113 million in higher interest costs. Neither party is willing to go back to citizens asking for more taxes -- not after hiking taxes $7 billion last year. So the only way to close the gap is to pull out the sledge hammers and demolish state social programs.

Governor Wilson wants $2 billion cut from aid to education. He's also proposing a $2 billion cut in welfare and health spending that would end all aid to the homeless, eliminate hospice care, close all shelters for pregnant teens as well as sharply reduce aid for poor mothers and children, the elderly, the blind and the disabled.

What a mess! Yet political leaders in Sacramento don't want to come to grips with this deep fiscal crisis. The boom times of the 1980s may never return to California. This requires a re-thinking of government's role in the Golden State, and elsewhere. Taxes might have to be raised again. Republicans and Democrats will have to stop feuding and start compromising.

California's recession also could loom large at election time, when the state chooses two new U.S. senators and plays a pivotal role in the presidential race. The impact of this recession is rumbling across the state stronger than an earthquake. California may never be the same.

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