Harold Meyerson has written a good piece on the basic reasons for California's current troubles:
The list of states -- Democratic and Republican, old economy and new -- is sufficiently diverse to dispel any notion that the fiscal crisis of the states is disproportionately the problem of one party or one region. It is, rather, hard-wired into the American system of governance, wherein virtually all the states have required themselves to produce balanced budgets even during depressions -- which means they must slash services and lay off workers even though such actions actually deepen the downturn.
But California is a special case simply because it's so big. Closing California's budget gap entirely through cutbacks in programs, as Schwarzenegger and the Republicans in the legislature propose, will deepen not only the state's recession but also the nation's. Fully 1 in 4 of the nation's underwater mortgages, for instance, are on California homes, and the effects of the governor's proposed cuts -- which UCLA's Anderson School of Business estimates will cause 60,000 state employees to lose their jobs -- will be to create a new wave of foreclosures and toxic assets on the banks' books. California accounts for 12 percent of the nation's gross domestic product and a disproportionate share of the federal government's revenues (and for every dollar that Californians pay to the feds, they get just 80 cents back in services).
Right-wing ideologues see the crisis as an opportunity to shrink government regardless of the consequences. Schwarzenegger is proposing to end welfare, not just as we know it but altogether, and to throw 1 million children off the rolls of the state's healthy families program. But the consequences of closing the deficit simply through cutbacks will be felt by more than the poor. Already reeling from $15 billion in cutbacks that the state put through in February, many school districts, including that of Los Angeles, have canceled summer school this year. Scholarships that enable students of modest means to attend California's fabled university system have been slashed. Most of the state's parks may have to be closed as well.
"Right-wing ideologues see the crisis as an opportunity to shrink government regardless of the consequences." Does that remind you of Naomi Klein's The Shock Doctrine? And to think that once California had the best public school system in the country!