Many of us view California as the state of dreams: miles of sun-kissed beaches, spectacular national parks, the glamour of Hollywood and the innovation of silicon valley. It is the USA’s most populous and richest economy and the eighth largest economy in the world. However, California has also characterised some of the USA’s less appealing features: enormous disparities of income and wealth, deep concentrations of poverty, racial segregation, gang violence and ghetto culture. In recent years, California has topped the national league table in another undesirable respect — the size of its deficit and the problems that it is experiencing in trying to tackle it.
A fiscal deficit is the difference between a state’s spending and its revenue receipts — which come mostly in the form of taxation. In recent years, California’s deficit has been particularly large and persistent. Although all US states (except two) are required by their state constitutions to plan for a balanced budget each financial year, in 2009 California’s deficit reached $24.3 billion (approx £14.5 billion) — one quarter of overall state spending that year. Its persistent annual budget deficits mean that wealthy California now has the lowest credit rating of any US state. A credit rating is a measure of the perceived likelihood of default; California’s low rating means that the interest payable on its borrowing has increased — thus placing even more pressure on its spending. California is desperate to break out of this vicious cycle.
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