What falling off the cliff means to California

SACRAMENTO, Calif. -  

With the so-called fiscal cliff deadline looming in Washington, many are wondering what will happen if a deal isn’t reached soon to avoid automatic tax increases and spending cuts. 

In California, some 400,000 people will lose their federal unemployment benefits, schools and other programs will likely suffer as funding is cut, federal employees may lose jobs and most people will see an increase in their income taxes.  

The state economy would likely be hit hard right in the midst of an economic recovery. 

It couldn’t come at a worse time for California.”

Chris Hoene is the head of a non-profit economic analysis group based in Sacramento. Even if a deal isn’t reached by the end of the year, congress could come up with short-term or long-term fixes in the days and weeks to come.

But, Hoene says, by then, wary investors and consumers may have already inflicted some damage on the state’s economy.   

If markets are watching, if investors are watching and not making investments, if consumers are watching and not consuming, it means that this very tenuous economic recovery we’re in has a likely of stalling or maybe even is threatened with another downturn,” said Hoene. 

“And the effects of another downturn on the federal budget, on the California state budget far and away dwarf the potential cuts or tax increases that happen as a part of any fiscal cliff negotiation.”

Hoene says investors and consumers really just need to see some kind of action to instill confidence that we’re not headed off the cliff. 

“It’s unfortunate that we’re finding ourselves back in that kind of a conversation at a time when we should be talking about recovery.”

It’s not all bad news. Some programs would be spared from any spending cuts if a deal is not reached, including Medi-Cal and social security.


 

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