The Governator has been threatening for a couple of weeks now to reduce public employee pay to minimum wage and now the courts have backed him.
California is illustrative of the looming crisis facing state and local governments. The national economy is going to tank when state and local governments lose the stimulus dollars. In Colorado we're looking at close to a billion dollar deficit in 2011/2012 out of a budget of $10 billion (down from $13 billion 2 years ago).
Tens of thousands of public employees are going to be laid off across the nation in the next year. We're already at close to 10% unemployment and we need to add 125k jobs a month just to maintain the unemployment rate. Throw those newly unemployed public employees in the mix and unemployment is going to shoot up immediately. Take those wages out of the community and watch more private businesses layoff workers and close, tax revenues will continue to plummet and then more public employee layoffs. Oh and don't forget the unemployment benefits that state's will have to try and fund.
Or if the public employees don't actually lose their jobs then, like CA, their pay will be cut so severely that they are no longer able to buy goods, buy houses and make payments on their debts. All of which further devastates local economies and tax bases.
Either way, it's a very nasty cycle.
We're headed towards a double-dip recession and no one in government seems inclined to take the drastic steps needed to avoid it. Hell, I don't think our political institutions can handle this even if Obama wanted to take action.