In Deepening Recession, California Begins Laying Off 20,000 State Employees

In the latest sign of the recession—and of its consequences for state and local governments—California began laying off 20,000 government workers today.

California, the world's-eighth largest economy, has a projected deficit of $41 billion through 2010. It's been trying for months to come up with a budget that can close that gap, but to no avail. Currently stalled in the legislature, the budget is now 15 weeks overdue.

As negotiations were stymied, the state took steps to try to get out of the red in other ways. State workers now go for two days a month without pay, while 5,300 public projects have been put on hold.

To try to stave off bankruptcy, Gov. Arnold Schwarzenegger announced last night that 20,000 workers would be laid off, half of them by July 1. The move is expected to save $1.5 billion. On top of that, the state plans to stop the 276 infrastructural projects that had been exempted from the statewide shutdown last month.

Meanwhile, the legislature is meeting again today to try to hammer out a deal for the budget. Currently, a Democratic plan includes several tax increases, including raising the sales tax by 1 percent and raising gasoline excise taxes by 12 cents per gallon. Almost all of the Republicans in the legislature object to the tax increases.

The state was slammed by both the housing crisis and unemployment, and it's been left with limited access to the credit markets. Standard and Poor's, for example, has dropped California's bond rating to the lowest in the country.

With so much against the state—and unless legislators come up with a solution—the state controller has predicted that California will run out of cash by the end of the month.

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