Thu, Jul 03, 2003 - Page 6 News List

California joins American states facing cash crunch

AFP , LOS ANGELES

America's richest state, California, officially went broke Tuesday, topping a long blacklist of cash-strapped US states that could drag down the recovery of the world's biggest economy.

California lawmakers failed to meet a midnight deadline to pass its annual budget, leaving the world's fifth-largest economy in a parlous state just as opponents moved to oust its beleaguered governor.

But most populous US state was just one of six that failed to pass a full spending plan ahead of the July 1 start of the new fiscal year, while at least 46 of the 50 states are lumbered with crippling budget deficits, experts said.

"It's ironic that almost all states in the world's richest nation are broke, and California, the wealthiest among them, is in the worst shape of all," said University of Southern California politics expert Sherry Bebitch Jeffe.

California is hobbled by US$38.2 billion budget deficit that has triggered a drive to topple Democratic Governor Gray Davis, with Terminator star Arnold Schwarzenegger emerging as a possible replacement.

State legislators had until the July 1 start of the new fiscal year to pass a spending plan, but partisan lawmakers are deadlocked over how to balance the ailing budget.

Republicans reject any solution requiring new taxes and Democrats insist that tax hikes coupled with spending cuts are needed.

But, while it is worse off than all the other states with a deficit as big as the budgets of most, California is not alone in its woes.

US states, which binged on tax cuts and spending in the boom years of the 1990s, are now struggling to cope with the worst budget crisis in decades as they feel the full brunt of economic slowdown.

Growing medical costs as well as boosted insurance and security expenditure forced by the 2001 terror attacks on US targets have dealt the crowning blow to the states, economists say.

But California, where state revenue depends more heavily than others on unstable tax revenue and which has a growing population of illegal immigrants requiring health and educational services, is by far the worst off.

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