By Ekaterina Volozova
(Beijing)– (M4relay, October 18, 2010) — California’s economy is the largest in the United States, and was once considered to be the eighth largest economy in the World. However during times of economic crisis, California was even at a greater risk than Greece, Jamie Dimon, Chairman of JP Morgan Chase, told the Daily Telegraph.
California ended up with a $15 billion budget deficit following the financial crisis. According to research conducted by Evercore Wealth Management, there were several major reasons for this. According to the research, managing fiscal responsibility within the state is very difficult. California is the only state where it is required to have two thirds supermajority for the legislature to increase taxes. Also, the state relies on a high capital gains tax that fluctuates significantly in the economy. The high income tax system causes many of California’s wealthiest citizens to relocate. There was no specific mechanism that builds meaningful reserves for recessionary period. The safety net for California citizens is very generous, and actually exceeds federal minimum standards; it cannot currently afford this system, the Evercore research pointed out.
The crisis affected many sectors in the state. Particularly, it had a strong impact on the education system of California. At one point, the budget deficit in the state was almost $34 billion. The quality of education plummeted, as there were limited resources in schools and class sizes were growing continually. More than that, increases in tuition fees made many students quit universities and colleges. Students and teachers began to protest against such severe budget cuts.
The damage that occurred has been significant. The state is attempting many solutions to get out of the mess, and the situation is slowly improving. Currently, the three main revenue sources in the state are personal income, corporate and sales and use taxes. The budget proposal relies heavily on federal government funding, which would let the state cut some of its expenses, according to Evercore Wealth Management.
With the economic situation slowly improving, there are areas which need to be developed in order for the economy to recover. One very important aspect is renewable energy, because it is something that in the long term can not only protect the environment, but also save a lot of money for the state. California has abundant natural resources, and therefore has always had a long history of support for renewable energy. By 2007, 11.8 percent of all electricity came from renewable resources such as wind, solar, geothermal, biomass and small hydroelectric facilities. It has been well-known that “California sunshine” can be used for many purposes. In difficult times, using the resources available might help to partially boost the economy in the region.
The State of California currently has many trade ties with China, especially in terms of renewable energy and solar power, which is very important for the State. Chinese company Yingli Solar currently supplies about 27 percent of California’s solar market.
Several months ago, a partnership was signed between California governor Arnold Schwarzenegger and officials from the Chinese province of Jiangsu. The proposal is expected to lead to an official proposal for a 500-megawatt solar power plant to be built in Kings County, California.
“California is proud to partner with China and we look forward to working together to reduce greenhouse gas emissions, improve energy efficiency and expand the market for renewable-energy sources,” Governor Schwarzenegger told the Solar Home and Business Journal.
Perhaps, slowly, with the help of available resources and appropriate planning, the economic situation in the state will continue to improve.