California Mortgage Effect | California Current

Things have been quite tough lately, but unfortunately, the domino effect is not quite over. Recently, Governor Schwarzenegger addressed California’s increasing deficit and called for a special session to take place next week. The session would address California’s budget issues as deficits are expected to grow pass the initial $3 billion dollar prediction. Much of the deficit is attributed to lower than expected state revenues, problems which can all be traced to the mortgage and housing crisis in California.

California’s income interestingly relies heavily on the income taxes of the wealthy, and as troubled mortgages suffer, so do these individuals. In short, as mortgages suffered, banks suffered, and so did the stocks which many of these wealthy individuals invested in. As a result, capital gains tax and state income decreased dramatically.

In addition, as available credit such as home equity loans dried up, so did consumer spending. For California, this meant a further reduction in state revenue as sales tax income declined as well. With the combination of declining sales tax and income revenue, California has suffered severely and we may begin seeing the effects well outside of our homes.

Your Kids and Their Education - Last months budget managed to avoid severe cuts for schools, but the current outlook doesn’t seem too positive. While numbers haven’t been set or even mentioned yet, the Sacramento Bee reported estimated figures in the range of $2 to $4 billion dollars. The numbers themselves are quite devastating, but the fact that schools are already in the middle of their academic year raises even more concern

Spending May Get More Expensive - In addition to these cuts, Gov. Schwarzenegger stated that he would have to push for a sales tax increase to help bridge the gap. In late August, the idea of a temporary sales tax increase was dropped because it lacked Republican support. Although in times like these, it will be tough to predict what California will have do to make ends meet.

You can expect these changes to meet their fair share of opposition; especially regarding the cuts planned for schools and education. Regardless, one thing most will agree on is the fact that this mortgage crisis is going to take its toll on even more people. While some individuals may have been able to dodge the effects of the housing and stock market, it is likely that almost everyone will be affected by these changes made to resolve California’s budgeting issues.