California’s governor declares fiscal emergency

Arnold Schwarzenegger, the governor of California, last week declared another fiscal emergency in the state as it again scrambles to cover its multi-­billion-dollar budget deficit.

California, which would be one of the world’s 10 largest economies were it a country, has suffered many difficulties passing budgets throughout the financial crisis.

The state budget, which is five weeks overdue, will need to close a $19 billion (£12 billion) shortfall, equivalent to 22% of the last $85 billion budget. The problems are threatening Cali­fornia’s credit rating. Though already weak, it has managed to keep its investment grade status with the rating agencies to date. (article continues below)

It is another area of concern for ­economic policymakers in America. The minutes of the Federal Reserve’s recent policy meeting showed increasing ­concern about the risks to economic growth.

GDP forecasts for the year ahead have been trimmed and employment and housing data have been weak.