With the housing crisis laying waste to California’s coffers, Arnold Schwarzenegger yesterday ordered all state agencies to cut budgets by 10%, the LA Times reports. “We are among a handful of states that has a lot of exposure to the housing crash,” said an economist. Property, sales, and income taxes are all down, threatening to balloon the deficit to $10 billion.
Income tax dependency and high spending have made California vulnerable to economic downturns. The state planned to make billions from increased property taxes and the sale of a state-owned educational lender, bets that have gone sour. “We never fixed the problem," said one economist. “It's been Scotch tape and glue and staples and just praying we will never have to face reality.”