In a scene likely to be played out in states and municipalities nationwide, things are starting to implode in California at the state level, the county level, and the city level.
The state has ordered mandatory, major cutbacks, with more coming, to deal with the projected $16bn budget deficit. The deficit was just revised upwards from $14.5bn, which virtually wiped out gains made from previous emergency spending cuts. Ouch.
The crumbling real estate market and high energy prices are expected to cause continued revenue shortfalls too. So much revenue, both directly (property taxes and fees when a property is sold) and indirectly (remodeling, real estate agents, appraisers, etc.) depended on real estate, and now those revenue streams are in free fall.
The State of California will have to massively chop budgets and also raise taxes. It’s not like they have much choice, do they? Given the high interest rates and shaky financial markets, maybe even issuing new bonds wouldn’t be much of an answer.