California lawmakers are fighting over a state budget even as a new fiscal year starts today. Budget battles in California are nothing new. Even state shutdowns because of fiscal disagreements are not a rarity. Last year, bickering delayed a new budget for 76 days.

This time, however, the problems are worse and the rest of the country should keep an eye on the goings on in Sacramento, the state capital. If it were a country, California’s gross product would rank fifth in the world, just ahead of France. So, the state’s budget problems are the country’s, and the world’s, problems. California is a large consumer of products, both finished and raw, made elsewhere in the United States and the world. If it isn’t buying new cars or parts for airplanes, for example, the states and countries where they are made will also hurt.

The biggest hurdle in California is a $38 billion budget gap – just this deficit would keep Maine running for 15 years. Democratic Gov. Gray Davis has proposed raising taxes, something a Republican minority in the state Legislature is adamantly against and a two-thirds vote is needed to approve a budget. While trying to reach a budget compromise, Gov. Davis is also fighting off a recall attempt. While politicians in Sacramento fight, there are real consequences that will be felt by real people if a new budget is not soon adopted.

California spends $1 billion more a month than it takes in and, for the first time in history, it is running almost entirely on borrowed money. Layoff notices were issued to nearly 10,000 state employees, including police, teachers and prison guards, last week. Community colleges may temporarily close and state-funded care for children with autism and adults with Alzheimer’s may be suspended.

California’s problems are the worst in the country, but they are not isolated. According to the National Association of State Budget Officers, 37 states reduced, by a total of $14.5 billion, budgets that had been enacted last year, the largest reductions in 24 years. In 29 states governors asked for tax increases totaling $17.5 billion to offset declines in revenue due, in part, to much lower than expected tax revenues.

Clearly, some spending restraint is needed, but so, too, is a recognition from Washington and the public that the states are suffering and need more federal assistance, not the piecemeal disassembling of federal programs that the Bush administration is currently undertaking. At a time when states are struggling to balance their books, they cannot be asked to provide more health, education, transportation and security services. Oddly this is what people expect. In a USA Today/CNN/Gallup Poll 79 percent said they preferred spending cuts to tax increases to balance state budgets. But, of those who favored spending cuts, 77 percent were unwilling to cut education funding and 78 said no to health care cuts. These two areas make up two-thirds of state spending.

Obviously, the public can’t have it both ways. That’s why California bears watching.