California, the ninth largest economy in the world, resorts to austerity

California, America's 'golden state', is slashing spending to avoid a Greek-style default

Los Angeles

Taking a deep breath, California's most powerful man strode to a lectern and unveiled the fiscal policy that he hopes will keep America's most populous state from falling into bankruptcy.

"You name it," he declared, "and we've got to cut it!"

It wasn't the most nuanced announcement. But this is no time for subtlety. After years watching his state fall deeper and deeper into the red, Governor Jerry Brown used a gloomy Monday night press conference to unveil what aides described as the ultimate in austerity budgets.

Welfare payments, healthcare for the poor, and benefits for elderly and disabled Californians will be immediately slashed by around $8.3bn (£5.2bn), which equates to roughly 17 per cent of Mr Brown's entire discretionary budget. And state offices, which employ roughly 200,000 people, will switch to a four-day, 38-hour work week.

The radical proposals came days after it emerged that the Golden State, which is currently suffering 11 per cent unemployment, has a projected annual deficit of $16bn, far higher than the $9bn predicted in January. Its total debt is now around $40bn, giving it the lowest credit rating of any US state in recent history and prompting fears of a Greek-style default crisis.

Things may get worse before they get better. If voters fail to approve a series of temporary tax rises at November's election, Mr Brown said a further $6bn of cuts will immediately be triggered, mostly targeting California's education system and reducing the school year by three weeks.

That proposed move, described as apocalyptic by Mr Brown's fellow Democrats, would also eliminate such iconic public services as the lifeguards who have historically presided over the state's sun-kissed beaches.

"I'm linking these serious budget reductions with a plea to voters: please increase taxes temporarily," Mr Brown told reporters in the state capital of Sacramento.

The drastic cuts underline California's position at the sharp end of a debt crisis which is slowly engulfing local and state-wide public finances across America. Stockton, an hour's drive north-east of San Francisco, recently became the biggest city in the nation to declare bankruptcy.

For years, California, like many public bodies, has been spending more than it can raise in taxes, and borrowing to make up the difference. The process was exacerbated by the 2008 housing crash, which decimated property prices and reduced income tax revenue.

This year, even with Mr Brown's latest round of cuts, the state will spend roughly $91bn but only raise $83bn. If allowed to continue, it could find itself unable even to service existing debts in a matter of months. "California has been living beyond its means," Mr Brown said. "The USA and its federal government is living beyond its means. Well, there has to be a balance and a day of reckoning."

Fixing the crisis has eluded successive governors, including Mr Brown's predecessor Arnold Schwarzenegger. Tax rises have for years been blocked by Republicans in the state Senate, who are able to exploit a law mandating that all increases in revenue must gain the approval of 60 per cent of legislators.

Most spending cuts are blocked by Democrats, who hold a slim majority of seats there.

With this in mind, Mr Brown, a veteran politician who served two terms as governor in the 1970s, has decided to bypass Sacramento altogether. He will instead ask voters, rather than politicians, to approve a package of specific tax increases in a ballot measure at November's election.

That proposal will see sales taxes hiked to 7.5 per cent, from 7.25 per cent. Residents earning over $250,000 a year will endure a 3 per cent rise in income taxes. People who earn more than $1m will pay 13.3 per cent, in addition to their federal taxes.

The world's wealth: 10 richest by GDP

(in millions of US dollars)

1. United States $14,620,000

2. China $5,879,100

3. Japan $5,391,000

4. Germany $3,306,000

5. France $2,555,000

6. Brazil $2,518,000

7. United Kingdom $2,259,000

8. Italy $2,037,000

9. California $1,911,822

10. Canada $1,564,000

Source: CIA World Factbook

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksNow available in paperback
Life and Style
tech
News
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
film
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
News
Ruby Wax has previously written about her mental health problems in her book Sane New World
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Sales Executives - OTE £60,000

£25000 - £60000 per annum: Recruitment Genius: Are you passionate about Custom...

Recruitment Genius: Care Workers Required - The London Borough of Bromley

£15000 per annum: Recruitment Genius: This homecare agency is based in Beckenh...

Recruitment Genius: Sales Executives - OTE £50,000

£25000 - £50000 per annum: Recruitment Genius: Are you passionate about Custom...

Recruitment Genius: Sales Executives - OTE £50,000

£25000 - £50000 per annum: Recruitment Genius: Are you passionate about Custom...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas