Posted on 13-5-2002
California
Dreamin
by Alan Marston
Last year's dot-com bust may be fading from memory, but its
flow-on effects
are far from simply historical interest. Local government is
often
forgotten in the business pages and even the other pages of
the media
opinion setters, affecting social consciousness, including politicians.
Sooner or later reality issues a wakeup call. Such is the case
in the state
of California. But only a fool would think the problems stop
there.
California Gov. Gray Davis and state finance officials are to
release
updated figures for the state budget on Tuesday, and economists
are
predicting that they will show a potentially catastrophic deficit
of $20
billion to $25 billion for the current fiscal year, which ends
June 30, and
the next. The shortfall could well force the state and local
governments to
slash an array of services, including police protection and
mental health,
state and local officials say. The California Legislature is
expected to
spend most of the summer in a brutal political battle over who
will have to
sacrifice the most.
State finance officials began expecting a problem months ago,
given the
downturns in the technology industry and the stock market. In
January they
predicted a shortfall of $12.5 billion. Now, with most tax returns
tallied,
the figures have mushroomed. The principal cause, the officials
say, is not
the overall economic malaise, or even the terrorist attacks,
but plunging
tax revenues from stock options and other capital gains, which
evaporated
when the dot-com bubble burst last year. "Everyone was taken
by surprise,"
said Kathleen Connell, the state controller, who has been forced
to prepare
an extraordinary $7.5 billion short-term bond offering next
month to close
the state's financial gap. "The diminished revenue was startling.
And we
don't see this as a single-year problem."
The problems are a reminder of just how unusual the 1990's were
in
California. While poor and working class immigrants flooded
into the state,
the wealthiest residents simply grew wealthier, laying the groundwork
for
the current problem. The top 5 percent of taxpayers accounted
for 22
percent of total personal income in California in 1980. By 2000,
the top 5
percent of taxpayers — with gross incomes of $150,000 or more
— accounted
for 42 percent of total personal income. When the stock options
and
portfolios of that tiny slice of the population collapsed, so
did the state
budget.
People don't live in `economies' they live in towns and cities
and rural
districts, all dependent on local politics and local politics
depends on
local incomes.
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