ABSTRACT
California is not just any state. If it were a country, it would be the world’s eighth biggest economy. However, it is not a country, so it faces the same public financial test that all subnational governments face in the United States. Each year it must submit and pass a balanced budget. What the state of California experienced from 2008 to 2009 is widely regarded, according to The Economist (July 11, 2009), as “America's worst budget crises.” This fiscal collapse actually began with a tax revolt through voter referendum, Proposition 13, over thirty years ago, which altered local government financing and led to a budget situation in which projected deficits reached almost half of expected revenues, the state’s credit rating fell to barely above junk bond status, and IOUs were issued to pay contractors and creditors. The actual day-to-day events of this continuing crisis, frequently producing front-page headlines, have left California residents wondering whether they were reading a horror story in the style of Edgar Allen Poe’s masterpiece, The Fall of the House of Usher (1839)—an eerie tale of dire events as a once-wealthy family falls into decline and madness.
