California Budget Problems
California is the richest and most populated “Golden State” of the United States of America. It is home to about 80 billionaires and 660 thousand millionaires. In the early twenty-first century, the crisis on the high-tech market gave a severe blow to the state budget, the debt amounted to the astronomical sum of $90 billion, and unemployment in the “paradise” of America formed 12%. Not long ago, California attracted migrants; however, after the 2000 crisis on the high-tech market, the state was left by 1.4 million American citizens more than the migrants arrived.
Naturally, the whole situation did not emerge spontaneously. It was dictated and provoked by a general crisis on the mortgage market of the country, and the condition was worsened due to local circumstances in the form of regular budget problems besetting the state for many years.
It suffices to recall that Arnold Schwarzenegger took the post of the governor of the state with the population of 36.5 million people and the hardest migrant condition, taking into consideration the highest number of legal and illegal immigrants in the state of the country. He had to resolve quite serious failures of his Democrat predecessor Gray Davis (liberated as a result of his early withdrawal from the post) and inherited a 12-billion budget deficit with a debt of $30 billion (Decker, 2013). On the eve of his ouster, Gray Davis, experiencing similar budget problems, delayed the approval of the 2002-2003 budget to August 31, actually for two months. At present, the state is experiencing the multiplying deficit, and the problem has hardly been solved (Angelides, 2011).
This situation was regarded as out of the ordinary and catastrophic; however, it is close to the budget crisis which we may observe at present. It is predominantly caused by the differences arising between Democrats and Republicans about ways of reducing the budget deficit (Douzet, Kousser, & Miller, 2008). As a resolution of the issue, Democrats propose to reduce the budget expenditures, on the one hand, and increase taxation of large corporations and the wealthiest citizens, on the other, and therefore solve the problem of the budget with the accent on wealthy Californians, who certainly would not suffer much because of that. After 85 days of debate, Californian Governor Arnold Schwarzenegger finally approved the state budget for the 2008-2009 fiscal year (Kogan & McGhee, 2013). For a long period of time, the budget remained unapproved, and the Golden State did not have a major financial law for almost three months.
Another great problem is transparency, which is hardly maintained: either citizens or investors are dissatisfied with the situation. The Governor of California even threatened to veto the state budget when it was close to its approval, aiming to limit the intervention of legislators into the budget process. The latter, however, made a return attack, admitting that it was not difficult to overcome the veto; consequently, the governor was forced to finally surrender (Kousser, Cain, & Kurtz, 2013). These confrontations, which may seem insignificant at first sight, play a ruinous role in the general process. When positive recommendations are not met but abandoned and personal trials take place in economic relations, great financial losses may occur and thus exert a great effect on the whole state of unimplicated citizens.
It is vital to admit that certain findings have been discovered and quite successfully implemented, even though Alderete claims in his research that those steps are not so positive: “When success is measured by the amount of the money saved, it is hardly encouraging” (Alderete, 2007). However, saving is still a good way to stabilize the budget. As for the budget practices aimed at counterpoising of the fiscal situation, only half of them had saving as a core idea. Nevertheless, there were cases when the sum of spending was appreciated in its value. The spheres of government administration and social services were most attracted in the process.
The other constant state practice, mid-session revision, demonstrated a significant spending reduction across the states adopting it – but the average 1.8 reduction in per capita spending was lower than desired. Performance measurement and performance management, as budget practices, had no statistically significant effect on total spending. (Alderete, 2007)
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It is consequential to recall the previous situation in the state and namely the approval of the “The Strategic Growth Plan to Rebuild California” by Arnold Schwarzenegger, which features certain issues such as the constitutional limit of governmental spending and state loan from the population in the amount of $15 billion. Concerning this document, the Californian Governor urged that the necessary measures should be taken; otherwise, the state expected the “financial Armageddon” (Shanske, 2010). The adoption of the draft of the loan was conducted through the legislature with great difficulties, which are quite noticeable.
Despite the resistance from the Conservatives, the state legislators planned to gradually raise the level of minimum wage in California, which would also be a significant way towards the resolution of the budget problem, but the bureaucratic business thus became more scrutinized then.
The following measures and amendments can be implemented to mitigate or even eliminate the issue:
- The budget practices should be initially defined and strictly controlled by the state governor. He should declare the baselines and distinguish annual spending because new necessities and requirements arise quickly, bringing the stable plan to its breakdown if the budget process is not watched precisely and controlled from all positions.
- Transparency of the budget process should be provided at all levels.
- Specific information concerning the budget process should be delivered to all the citizens of the state.
- In order to surmount the crisis, the stabilization (reserve) fund should be created at the expense of external borrowings that can be brought under government guarantees. The agenda of the formation and use of the fund should be adopted.
It is obvious that the aforementioned amendments would not be left without criticism, which may arise regarding the implementation of the points. The critics would say that it might be unnecessary to secure the all-level transparency and demand a lot financially. They would also say that it would be too expensive and inconsequential to deliver the whole information to the citizens of the state. As for the external borrowings, they may claim that it is not a good option to borrow in the situation of the crisis, as well as to spend so much on media. The criticism would surely not leave the first amendment without an objection, and it is likely to concern the role of the governor in the budget process. Moreover, it is worth mentioning that Californians are prone to elect fiscally liberal governors, and to control the budget process, much stronger measures are needed than just debates. The highly populated state needs a distinct legislature and law system regarding the financial sphere, while the practices concerning the budget process have to be compulsory and indispensable. At the same time, the role of the governor is very significant, and it should not be underestimated: the governor should control the process very strictly and precisely.
In fact, the costs for transparency and media would not be so considerable but certainly justifiable. What overlays the budget deficit is the abruptness of spending. In case of criticism, it should be mentioned that natural disasters are typical of the state. The already unfavorable financial situation in California is getting dramatically complicated when natural disasters superimpose upon the large-scale financial crisis. It is always difficult to control such issues, and this is where the external borrowing is most requisite; the same should be claimed about media and transparency. Funding targets within the plan for re-establishment of the objects ruined by natural disasters should be implemented, and the process should be transparent to the donators, who have their full right to perform the legislative access when necessary.
California is undergoing a fiscally difficult period of budget crisis. The problems of the state budget are complex and various, but they can be dealt with and solved if addressed without hesitation. The proposed amendments may help improve the situation of the state but only in the case when both governors and citizens are aware of the problems, ready to deal with them and fully utilize the possible measures and opportunities.