Such is the sad fate of America’s once Golden State. Years of expansion of left-wing entitlement programs and dogmatically partisan politics brought California’s state government to the brink. The state has the dubious honor of holding the lowest rated bond and the state comptroller has to resort to issuing I.U.O.s earlier this summer as a compromise to close a $26 billion budget hold failed to materialize and the state ran out of money.

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But after weeks of fierce negotiations between tax-hating Republicans and free-spending Democrats; Governor Arnold Schwarzenegger, the state assembly speaker, the senate majority and minority leader, and the house minority leader finally hammered out an agreement that is expected to pass a vote on Thursday.

There will be a mix of tax increases and deep spending cuts.

The budget will bring in deep spending cuts, such as slicing $6 billion from the budget for schools and community colleges and $3 billion from higher education.

Welfare programmes, including the state’s medical-insurance plan for the poor, will have to make do with less money. New requirements on welfare recipients to attend interviews for work and have their cases re-evaluated will come into force in two years. Mr Schwarzenegger said this measure would go some way to “cutting the waste, fraud and abuse”. Prison spending will also be cut by $1.2 billion, leading critics to mutter that 20,000 prisoners will have to be released early.

California’s economy is an example of what high-spending and excessive liberal regulation does. The state boosts an above average unemployment rate, schools are morbid even though spending is high, businesses confront productivity killing regulation, and every year 100,000 people live the state looking for a freer American elsewhere.

Let this be a warning to all Americans in the era of Obama’s big government ambitions.