Consumer sentiment concerns California controller

SAN FRANCISCO (Reuters) - Like other top California officials, State Controller John Chiang says the state's steep drop in revenues is shocking -- and likely to persist until the state's labor market rebounds.

That may be a while. The most populous U.S. state's unemployment rate stood at a near record 11.0 percent in April, one of the month's highest state jobless rates.

For Chiang, California's unemployment rate means fewer dollars for a state government facing a $24.3 billion budget gap for its fiscal year beginning in July and the prospect of financial "meltdown" within 50 days unless the shortfall is plugged.

"Until people feel confident about their personal financial situation, it's difficult for them to go out and spend," Chiang told Reuters in a telephone interview on Thursday.

Gov. Arnold Schwarzenegger and lawmakers look to Chiang, who serves as California's chief financial officer, for a sense of how the state's revenues and cash account are faring. For much of this year, he has reported revenues have been sliding at an alarming rate while the state was burning through its cash.

Earlier this year, Chiang postponed tax refunds to keep money in the state's coffers until Schwarzenegger and lawmakers cobbled together an agreement to balance the state's budget for the current and next fiscal years.

The agreement didn't do much good. Last month, the governor said the next fiscal year's budget gap had reopened because revenues were falling harder than expected.

Chiang dropped more bad news on the Republican governor and Democrat-led Legislature on Wednesday with his monthly revenue report, which underscored that California is in its worst cash crisis since the Great Depression.

EYES ON CONSUMERS

The report said California's revenues fell in May by $1.14 billon, or 17.7 percent, from a year earlier and fell short of estimates in Schwarzenegger's budget plan by $827 million.

That prompted Chiang, a Democrat, to issue one of his most dire warnings yet: "Without immediate solutions from the governor and legislature, we are less than 50 days away from a meltdown of state government."

Chiang said he is worried about "everything" propelling the state's revenue slump, but is keeping an especially close eye on the job market since it affects personal income trends and consumer and corporate sentiment.

They had a bleak May. California's personal income tax revenues tumbled 39.3 percent from a year earlier while corporate tax revenues fell 52.1 percent and revenues from sales taxes sagged 7.6 percent, according to Chiang's office.

"Consumers are not stable in their jobs, which affects their personal income taxes," Chiang said. "That's going to impact in other places, like our Nordstrom sales."

Chiang says he sees anxiety among employers as well, with corporations cutting payrolls and spending on services.

"There is a lot of fear," he said. "When you see prestigious law firms laying off lawyers hand over fist, you know it's bad."

Chapman University's Anderson Center for Economic Research provides a glimmer of hope that California's consumers may be venturing back to shops, malls and restaurants.

The center's California Composite Index of Consumer Confidence rose by more than 12 points from the first quarter to a level of 70.7 in the second quarter -- below the 100 threshold for positive sentiment, but its best showing since the fourth quarter of 2007.

"Clearly, consumers feel the brunt of recessionary forces are behind us and anticipate a turnaround in economic conditions over the next nine to 12 months," the state's consumer confidence index report said.

(Editing by Jan Paschal)