CHESSNOID

California has a ton of foreclosures and have many more coming down the pike.  We have had extraordinary sales numbers in the past few years and even higher unsustainable returns on equity.  Basically, we had houses go from $150,000 to $600,000 in  just 5-6 years.  With that in mind, property taxes  taken in also increased accordingly.  Now, we have had the housing bubble burst in the last 12 months, with California having 20 to 50%  drops throughout the state.  Translated, tax revenues have gone down.

Houses foreclosed on means tax revenues are  not collected. In the big picture that Arnold said he did not see coming earlier this year, that means the budget will not be balanced without cuts.  We have been spending more than we should and now that revenues aren’t coming in, cuts will be made.  This is what Arnold proposes with the California State budget to get it balanced and avoid sinking further into a worsening budget deficit.

SACRAMENTO, Calif. (AP) —

The nation’s economic meltdown is taking state budgets down with it — especially in California, where Gov. Arnold Schwarzenegger said Thursday he wants to close a $11.2 billion gap in part by raising sales taxes on everything from cars to Disneyland tickets.

Several other states are confronting billion-dollar deficits. Some, including Massachusetts, North Carolina and Wisconsin, have ordered broad and deep cuts in spending, while others have only begun to consider how to compensate for their revenue wells drying up.

Schwarzenegger wants $4.5 billion in cuts; one of his proposals would force state employees to take a day off each month without pay and give up two holidays. But he says cuts alone aren’t enough to deal with a steep drop in revenue, and he proposes $4.7 billion in tax hikes, including a three-year, 1.5-percentage-point increase in the sales tax.

“We have a dramatic situation here and it takes dramatic solutions … and immediate action,” Schwarzenegger said as he called the Legislature back into session to deal with the shortfall. “We must stop the bleeding.”

California’s bleak new projections come just six weeks after Schwarzenegger signed this year’s budget, which made $7.1 billion in cuts to services to help close a $15.2 billion deficit.

“I’m not a believer in taxes, I’m not a believer of increasing fees. It’s just under these circumstances it’s necessary to do,” Schwarzenegger said.

California relies heavily on capital gains taxes, which have plunged along with the stock market. Sales taxes also have plummeted as consumers have cut off nonessential spending. And California is among the states hardest hit by falling housing prices.

The state controller issued a statement saying California runs “the very real risk” of a severe cash shortage by the end of the year and may have to resort to borrowing so it can balance its books. Its deficit is now 11 percent of general fund spending and could double by next fiscal year if not addressed immediately, the controller said.

Being a resident of California, it seems very bleak out there right now. I do hope the governator is able to get the situation under control. I did vote for him and in all honesty, he has shown complacency. Before we reached this point, he could have got California’s budget and spending under control at anytime since he took office in 2003. He points his finger now but also needs to accept responsibility for his failure:

California’s crisis has brought a change in rhetoric from Schwarzenegger. Since taking office in 2003, he has blamed “autopilot spending” by the Legislature whenever California has confronted fiscal woes, but on Thursday he said, “It is now a revenue problem rather than a spending problem.”

We are in a very weak local economy possibly worse than the rest of the nation.  I think his ideas may hurt in the short term but may help in the long term.  No one wants to pay more taxes but we can’t cut everything.  I do hope it works out sooner than later.  His solution is a tough one and includes the following:

His proposed sales-tax increase would apply to items as varied as cars and amusement park and sporting game tickets. For the first time, the sales tax also would be applied to services such as vehicle, appliance and furniture repairs, veterinarian services and even greens fees for playing golf. Taxes on alcohol also would increase.

Other revenue could come from raising the registration fee for vehicles by $12 and taxing companies that extract oil from California, which Schwarzenegger said would generate $528 million this year.

The governor also wants to accelerate hundreds of millions of dollars in public works spending to spark job creation. At the same, the newly unemployed would struggle more under his plan. He wants to tighten eligibility for unemployment benefits because the state’s unemployment insurance fund is on the brink of insolvency.