California's Economic Downturn 'Severe'
CALIFORNIA is in the midst of its most severe economic downturn of the past half-century and could face renewed budget problems next year.State Treasurer Kathleen Brown, speaking to a real estate symposium Wednesday, called on Gov. Pete Wilson to recall the Legislature to deal with the budget, which is under severe strain brought on by the sharper-than-expected slowdown. "Every sector of our economy has been hit," Ms. Brown said. "California's recession has to be recast as severe." Signaling the state's weak commercial real estate market, the Federal Deposit Insurance Corporation announced this week that California's 485 commercial banks lost $74 million in the third quarter. That was their worst performance since 1987, when several large California banks absorbed big losses on loans to third-world countries. The state Legislature passed a tough budget this past summer to wipe out a shortfall of some $14 billion, a record for any state government. But because California's economy continues to sputter, Brown says the deficit is back. She said it could amount to $4.6 billion when combining the current year with the 1992-93 fiscal year. Brown also said that if the state's economy does not recover in mid-1992 as now forecast, the spending shortfall could swell to $7.4 billion. The state treasurer continues to meet with credit rating agencies to discuss the state's new budget problems and she warned that California's Triple A credit rating is again vulnerable. A lower credit rating would raise the state's borrowing costs. Brown said the legislature needed to deal with the budget both in the short term to deal with the deficit and in the longer run to address cyclical problems. On Monday, Governor Wilson announced he would ask voters next year to consider a constitutional amendment that would reduce welfare benefits by almost 25 percent as a way to address the state's budget woes.