California has a budget, may sidestep bankruptcy

California Senators worked for weeks to hammer out a new budget. They came to an agreement Friday, allowing California to end its state of emergency. The agreement will allow money to flow back into the state's economy once again.

Facing a shortfall of around $25 billion, and division over how to set the budget, California was without a budget, which meant it could not access funds. The state had been issuing I.O.U.s in lieu of wages, payments to vendors, and for tax refunds. Governor Arnold Schwarzenegger had declared a state of emergency at the beginning of July. The IOUs were popular with collectors, but banks had said they would not honour the IOUS. One of the sticking points in budget negotiations was Schwarzenegger's insistence that there be no new taxes levied on Californians. Last Friday, California's legislature overcome the disagreements and impasses, hammering out a budget that allows California to limp forward into the future; bruised and battered, but not defeated. Schwarzenegger defended the budget saying,

"California has experienced an unprecedented drop in revenues, and we have no choice but to live within our means."

Budget negations had been underway for weeks before the resolution was hammered out. The new budget may not have any new tax increases, but there were fee increases. A number of budget items saw slashes to spending, particularly education, which Schwarzenegger had wanted to protect. However, basic social services were protected under the new budget. In order to work out the budget, senators slashed over $15 billion in spending. Some financial experts have criticized the budget, saying that it will cause California to continue to suffer because it negates the effects of federal stimulus spending. The budget agreement means that California will be able to borrow money and pump funds back into the economy. California now needs to raise money and the budget makes plans to not only borrow money, but will see the sale of California's insurance fund. The budget also plans to raise funds from oil drilling in the ocean off Santa Barbara. California isn't the only state in financial difficulty, although it is the only state that resorted to issuing I.O.U.s. According to the State Budget Update July 2009, a total of 31 states and Puerto Rico had budgetary shortfalls that totalled $40.3 billion. The report goes on to say that cumulative budget shortfalls in the U.S.A. had reached a staggering $113.2 billion at the beginning of this fiscal year. California's unemployment rate is over 11%. California has the highest population of all the states with 36,756,666 people. California also has one of the lowest credit ratings in the U.S.A.