As the above map shows, more than 40 states are facing a budget shortfall in fiscal 2012. Ten states will fall short of revenue needs by 20% or more; Illinois and Nevada are both projecting shortfalls representing approximately 45% of their budgets. The top five are rounded out by New Jersey, at 37%, Texas at 31%, and California at 28%. Those five states combined project a total shortfall of just under $40 billion.
It appears that even the dismal case projected for California was an understatement. Tax revenue for the fiscal year is currently running $3 billion below projection.
It's also important to note that those figures are only for fiscal 2012. Factor in pension liabilities, estimated at more than 10 times annual budget in California's case, for instance, and the situation is untenable.
Recent columns at The Ponds of Happenstance and the Orange County Register point out the essentially-feudal society developing in California, and the exodus of the middle-class underway. Nor are the Californians who remain flush with cash; the average debt to income level in CA is still over 130%.
The Los Angeles Times points out that California placed 48th in a study of business-friendly states, trailed only by New York and New Jersey -- and that was the good news. A few weeks later, the Times reported even more dismal information.
Leading with the news that Chief Executive magazine had named California the worst place to do business for the eighth year in a row, they went on to detail some of the reasons.
Its 10.9% unemployment rate is only lower than Nevada's and Rhode Island’s. A third of U.S. welfare recipients live in California, the report noted. High state taxes and bundles of red tape make operating a business in the state unaffordable to many companies, critics say.Yet Governor Jerry Brown continues to insist that a fantastically expensive high-speed rail system connecting the Bay Area and Los Angeles is a keystone to California's future.
Last year, 254 California companies moved some or all of their work and jobs elsewhere -- 26% more than 2010. Most chief executives in Silicon Valley said they won't expand in the state, according to the survey.
Joel Kotkin, writing at The Daily Beast, wonders if California’s slow-motion tragedy could end up as a national one. He makes a good case for that scenario, detailing instances where Obama has held up California as an example for the rest of the country.
Perhaps that's because President Obama comes from one of the few states in worse financial shape than California, Illinois, which is facing an estimated $15 billion budgetary shortfall in 2012, representing 45% of budget.
In a recent appearance on CNBC as reported at Economic Policy Journal, Meredith Whitney made note of Illinois' problems.
According to Meredith Whitney, things are so financially tight in some school districts in Illinois parents are required to separately pay for school busing of their children.California, New Jersey and Illinois look a lot like PIIGS to me. Nor are they the only guilty parties, simply the most gluttenous. With a handful of exceptions, the state governments seem to be emulating the feds, spending like there's no tomorrow. The bills are going to start coming due very, very soon. There's no money to pay them, and a shrinking tax base to collect from. Something's got to give.
She sees serious financial problems ahead for California, New Jersey and Illinois.
What are the odds that "Something" will end up being the Federal Reserve, cranking out a few trillion more to save "too big to fail" California or Illinois?
...and that's all I have to say about that.