California has been hit hard in several areas for the the last decade, and combined with rampant spending, we are now broke. I'd recommend getting rid of prop 13, so the state can actually draw in some revenue. Young people can't really afford homes in a climate with no jobs and no credit.
Ultimately, the probably is overspending and now its time to unleash the horsemen and let the reaping begin. LA Unified gobbles up a nice 13 billion annually, then proceeds to spend record proportions on administration instead of students. It needs to broken up into a series of smaller school districts where the local community actually can decide how to run their school.
Next, we need to get Obama to call of the DEA, and let us run our own damn state. We pulled in 2 billion from taxing alcohol/tobacco, and spent 10 billion on prisons. If we decriminalized marijuana in reasonable quantities and taxed it, we could be looking at billions in revenue.
Finally, we need to get our economy going to bring money back into the coffers. California made a good choice in bringing the stem cell research here, now we should be looking for other emerging technologies and encourage them to locate in our nice climate.