Friday, January 18, 2008

California’s sweeping budget cuts draw fire

The subprime collapse has had a direct impact on state revenues: house price sales have dried up which has, in turn, reduced property tax collections. This has hit state coffers by $1bn during the past two financial years, according to Bill Lockyer, California’s Treasurer.

“The economic downturn has deepened our budget hole by preventing revenue growth from keeping pace with spending growth,” says Mr Lockyer. “And it has brought into sharper relief our ongoing, long-term structural budget problem, namely our chronic inability to match revenues with expenditures.”

I've said for a while now that the biggest impact of the downturn in the real estate market would be on state and local government. For too long public finances have been dependent on Ponzi scheme pricing. Maybe now there can be a realistic conversation about how we fund government in this country.

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