Originally Published: 6/1/2011
It’s no secret that the U.S. is going through a long and rough recession, but could the entire state of California be in even worse shape? Many economists agree that California is currently going through a financial tragedy, with a projected budget deficit of 19 billion dollars this year. What’s more unnerving is that California is currently ranked the 9th largest economy in the world, with a population of over 37 million. So exactly how bad is California’s economic situation?
Jobs- No job in California is safe at the moment. The state cut 22,000 teachers in the past year to help with the education budget. Small businesses are suffering as well. Sacramento now has one closed business for every six that remain open.
Assistance Programs- With California’s unemployment rate at 12%, more and more residents are seeking public assistance. In Los Angeles County 1 in 5 people are now receiving public aid. California as a whole has 12% of the nation’s population, but 36% of the country’s Temporary Assistance for Needy Families welfare recipients.
State Pension Fund– With fewer Californians in the workforce, the state’s pension fund is quickly plummeting. CalPERS, California’s state pension fund has $16.5 billion more in liabilities than assets. On top of the already bankrupt system, California is expected to receive a $51.8 billion bill for the state’s retirees’ healthcare in the next year.
Healthcare System- California’s Healthcare System might be the biggest mess, with 1 in 4 Californians (under 65) having no health insurance last year. This individual dilemma has snowballed into a state-wide problem, as dozens of hospitals and E.R.s have shut down in the past ten years. The connection? Many hospitals and emergency rooms could not afford to stay open after being filled with illegal immigrants, unemployed Californians and homeless people who weren’t able to pay for the services they were receiving.
So, what does the future hold for the Golden State? While an official bankruptcy is preserved for individuals, business and municipalities, the state might need to undergo a similar process. If California cannot repay their debts, the federal government will need to step in and put the state into “receivership.”
According to an article in Slate, “[Receivership] would involve the assignment of an accountant to manage the state’s debt, overseen by a judge. It would be a lot like bankruptcy, except instead of following a structured set of steps, a receiver has the authority to force creditors to renegotiate loans in a speedy fashion.” Details are still unclear, as California would be the first state to go into receivership.
One thing is sure; California will need to take drastic measures to get their economy back on track. Unfortunately, California is not alone in their financial panic, as many states are facing overwhelming deficits.