A Gathering Storm

California is a big State. It is a rich State. It is an expensive State to live in. The various governmental and public service organizations here are large and cost a lot to operate. This makes taxes very high. We have a very high State income tax. Sales taxes, gas taxes and property taxes are also high, as are the myriad of user fees that the State levees on hundreds of other things.

As the economy tanks, many people are going to be making less money. They will have less money to pay taxes. Lower incomes mean less income taxes. The foreclosure of a home means less property taxes. No job means a lot less driving and less gas taxes. Fewer purchases mean less sales taxes paid. Unless the current economic trends are a fleeting blip, the State of California is heading for a big revenue shortfall.

People are going to expect governmental services to remain constant. They are going to expect the infrastructure to be maintained. If we go into a period of stagflation, costs will increase as revenues decrease. Public employees and retirees are going to expect to be paid. They will want the benefits and pay raises that their unions have already negotiated.

California ran a huge deficit last year and will again this year. They do this by issuing bonds. Unlike the Federal government, they are not able to print money, so they have to pay the interest on these bonds with actual revenue. They are already past the limit of interest on bonds that they can afford to pay. The economy doesn't even have to get worse for the situation to deteriorate. Given present inflationary trends and the large percentage of public employees reaching retirement age, unless revenues increase dramatically, the State of California is pretty much fucked.

A lot of States are in the same boat. Many are in even worse shape.

The outlook isn't totally bleak. North Dakota and Utah should come out of this in good shape.