This was a piece of my August story about Chula Vista’s boom time gone bust:
The housing fever that infused individual homeowners with dreams of eternal appreciation and easy retirement also infected governments. Years of spiking values propelled homeowners to invest in vacation homes or to tap newfound equity to purchase new cars and travel the world. So too, cities, school districts and redevelopment agencies got a taste of increased revenue from property, hotel and sales taxes and spent it, budgeted for it to continue, grew to expect it. And now many must gear down the budgets they drafted mid-euphoria.
And today’s Los Angeles Times reports on the latest government to face that budget gear-down: California. The governor ordered state departments yesterday to draft 10 percent cuts to their budgeted spending after he was briefed on the budget’s plunge further into the red, the Times reported.
Here’s more from that story:
The state’s mounting financial problems will also make California less attractive to Wall Street, which could downgrade its credit rating.
Economists say the state’s declining fortunes are due in large part to the shakeout in the housing market and a volatile revenue system overly reliant on income taxes. As state officials discovered last time the economy went into decline, any downward shift leaves California’s general fund reeling.
And more from the Times:
The state is also being forced to confront the consequences of not saving money when times were better.
When the economy improved nationwide several years ago, most states erased chronic deficits and began building rainy day funds. California did not. It continued to spend more money than it brought in.
“We never fixed the problem,” said Chris Thornberg, a principal with Beacon Economics. “It’s been Scotch tape and glue and staples and just praying we will never have to face the reality that state government is on a path that is not sustainable.”