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California Deficit Baloons To Service-Threatening 16 Billion

California's balooning deficit has led governor Jerry Brown to pose choice between tax increases and drastic cuts.
By Amiel Ungar
First Publish: 5/14/2012, 10:31 AM

With all the talk about European sovereign debt crisis, the issue of the US debt crisis has been off the radar. This was a result of a congressional agreement that increases the US government's borrowing power till the elections.

The Republicans agreed to this as they wanted to avoid a repetition of the 1996 budget crisis that brought government to a temporary standstill and backfired against them in the election. After a great deal of internal wrangling, the Republicans decided to do their best to win the election and only then tackle the debt crisis.

However, what is still true for the federal government is not necessarily true for the states. The most populous state of California is now experiencing a debt crisis of its own, as the deficit has ballooned from a projected 9 1/2 billion in January to 16 billion.

This has forced Governor Jerry Brown and state officials to contemplate deep cuts in such core areas as the state educational system, from elementary school to the universities, and even cuts in law enforcement protection. Additionally, Brown is forced to huddle with union officials to contemplate reductions in the state payroll.

Back in January, Brown and fellow Democrats, who claim that they inherited a massive debt burden from Arnold Schwarzenegger, were expecting an additional $4 billion in tax revenue, part of it from taxes on Facebook's IPO. They also made cuts in some of the state financed medical and welfare programs. The tax money did not materialize and some of the cuts were removed, either by federal officials or by the Democratic controlled state legislature, and this accounts for the massive deficits.

To bypass the legislature, Brown is putting a tax increase on the November ballot - to be directly approved by the voters. The sales tax will rise by a quarter percent and those earning over $250,000 will be taxed an additional 1-3%. This, according to Brown, will close the gap.

Now the question is whether the voters will prove more amenable than the legislature, particularly when they are smarting over a deficit a lot bigger than was promised.