To quote economist Rich Farr, “...if California was its own country, it would be the world’s 9th largest economy, according to 2010 GDP data. With an annual GDP of $1.9 trillion, California’s economy is nearly the size of Italy’s and it is over 6x the size of Greece’s economy.”
The controller recommends borrowing and delaying some payments to deal with the shortfall, which he projects will last seven weeks. Absent that kind of action, which lawmakers and the administration of Gov. Jerry Brown say is assured, the state would probably have to send IOUs and delay tax returns.
"Although this cash-management plan relies on still more borrowing, payment delays and deferrals, we believe this is the most prudent and responsible course of action considering we have about four weeks before the advent of a cash shortfall," Chiang wrote in a letter to the chairmen of the Assembly and Senate budget committees.
The controller said the overarching problem is that, as of the end of the calendar year, the state was spending $2.6 billion more than was included in the budget while tax revenue coming into state coffers was $2.6 billion below projections.
He said $3.3 billion must somehow be found if the state is going to bridge the seven-week cash shortfall period, but the situation could get worse if there is more overspending and further reductions in tax income.