Golden State Shining a Lot Less These Days

The home of Hollywood, about to host a massive Oscar party, faces dire straits.

ByABC News via logo
February 20, 2009, 8:56 AM

Feb. 20, 2009 — -- From Tinseltown to Thousand Oaks, California has been crushed by the financial crisis. The state has the nation's second-highest foreclosure rate, near-double digit unemployment and the country's lowest bond rating. The state's economy has teetered on the brink of total collapse for weeks.

Facing a $42 billion deficit, Gov. Arnold Schwarzenegger sent state workers home unpaid and stopped income tax refunds.

Lawmakers finally reached a compromise Thursday morning but only after being locked in the state capitol all week to work out a deal.

The $143 billion budget aims to close that $42 billion deficit through 2010, which means increased taxes and deep service cuts that will affect most Californians, from students to the elderly.

Democrats had to back away from their opposition to spending cuts: The package includes $15.1 billion less in spending. Republicans, for their part, set aside their opposition to tax increases — allowing $12.8 billion in tax hikes.

The deal also calls for billions in borrowing and measures intended to stimulate the state's economy.

"Now, instead of worrying every day only about IOUs or a flood of red ink, we can start moving California forward once again," Schwarzenegger told a news conference Thursday.

Critics, however, said the new budget does little to stimulate the state's troubled economy, and many residents are worried about the future.

"People are going to feel a lot more pain than people are feeling right now," Los Angeles resident Stephen Hootstein said.

Even the extravagance and excess typically associated with the Oscar awards will be dialed down Sunday.

"You're not going to be seeing the lavish parties," said Melissa Magsaysay, an assistant editor at the Los Angeles Times. "I think that Hollywood and celebrities are definitely sensitive to what's happening, especially because the state that California's in."

But there are signs the Golden State hasn't lost its glimmer.