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California deals with its own financial crisi -

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Reporter: Eleanor Hall

ELEANOR HALL: As we've been hearing, President Obama signed the massive US economic stimulus
package into law today.

But in the state of California, the Government is already undermining its effect by cutting state
jobs and spending.

California is the eighth largest economy in the world but it has been particularly hard hit by the
financial crisis.

Governor Arnold Schwarzenegger can't get his Budget passed and with the state about to run out of
money he is laying off tens of thousands of state workers.

Jean Ross is the executive director of the California Budget Project which analyses the
California's finances.

JEAN ROSS: We are facing a serious Budget deficit and also an immediate cash flow crunch and the
two are working together to both cause certain payments to be delayed, the Governor has also as
part of his, his part of efforts to bring the Budget into balance announced that he will be sending
lay-off notices to several tens of thousands of state workers.

The state has begun to furlough employees, initially two days a month, now that looks like that
will end up as being one day a month due to the conclusions of some labour negotiations.

So it will have a very significant impact on the state workforce.

ELEANOR HALL: And are these lay-offs and furloughs just temporary until the Budget is passed?

JEAN ROSS: That's still unclear, certainly the lay-offs, the furloughs appear to be part of the
Budget plan that would stretch through June of 2010, however our longer term forecast suggests that
California will be facing deficit several years farther into the future.

So it's unclear what steps will be taken in those additional years.

ELEANOR HALL: To what extent is this lack of access to money I guess, a result of the financial
crisis, and why can't California, the eighth biggest economy in the world, get access to money?

JEAN ROSS: Our broader Budget problems are really the result of the down turn in the global
economy, our immediate cash flow problems are in part the result of the financial meltdown
worldwide, and California typically borrows large sums of money, large sums of money are hard for
any borrower to come by these days.

And because our budget problems are so severe, we're not deemed to be particularly credit worthy in
financial market.

ELEANOR HALL: Well Standard & Poor's has just downgraded the states bond rating to the lowest in
the nation. Why is California so much worse off than other states?

JEAN ROSS: We have the most restrictive rules governing our budget process. We are also the biggest
state in the US and the most diverse state. And right now our budget problems are so large that I
think most experts, including our Governor who is known for his anti-tax stance, have come to
believe that the only way to bring the Budget into balance is both to cut spending and increase
taxes.

ELEANOR HALL: The President today signed the US stimulus package into law, by restricting pay to
government workers and so on, isn't the Californian Government going in the opposite direction?

JEAN ROSS: Certainly the moves that are under consideration are not what you would want to do
during an economic downturn.

Certainly people are cutting back, both because the furloughs have already begun about 10 days ago
was the first day that state workers were told not to come into their offices. At lunch hour that
day certainly the restaurants and coffee shops near the state capital in the downtown area of
Sacramento were quite empty.

When you talk to state workers, they are cutting back; for many of them this will be a five to 10
per cent pay reduction, many people are already stretched to make ends meet, and so certainly they
are buying less, going out to eat less, and trimming back where they can.

We all have our fingers crossed that the new Federal measure will help get our economy moving
again, however I think it's not good news that the day the President signed that Bill into law the
stock market dropped by about four per cent.

ELEANOR HALL: Jean Ross, thanks very much for joining us.

JEAN ROSS: Thank you.

ELEANOR HALL: Jean Ross is the executive director of the California Budget Project.