Arnie's weighty task in California

NOW that Arnold Schwarzenegger has won the governorship of America's most populous state, he will have to figure out a way to fix its struggling economy.

And he has to come up with a detailed plan by the time the next state budget is presented in January.

The problem is massive. During the go-go boom years of the late 1990s, California spent with abandon on schools, health, higher pay and a slew of other programmes. At the same time, it cut taxes. When the bubble burst, tax revenues - the main source of revenue in the $71bn (£43bn) annual budget - dived.

Unemployment has soared with nearly a quarter of a million jobs lost in the past two years, cutting revenue from personal taxation and sales tax still further. State laws such as Proposition 13, limiting property tax increases to a maximum 2% a year, make raising more money difficult.

Inevitably, the state's deficit shot up as it turned to borrowing to make up the shortfall. The deficit is now $38bn. In a $1.4 trillion economy - roughly the size of Britain's - that may not look much, but it is a serious problem.

California already has the lowest credit rating and highest borrowing costs of any state in the US. Even with the state economy returning to healthier growth in recent months, further borrowing looks very unwise.

Although Schwarzenegger wheeled out financial heavyweights such as Warren Buffett, the legendary investor, at the beginning of his campaign to add ballast to his economic pronouncements, he has not articulated a clear economic plan.

Indeed, Buffett was conspicuous by his absence once the campaign really got under way. What little Schwarzenegger has said about his plans does not sound reassuring.

He says he will not raise taxes, and will cut the recent increase in car tax (automatically raising the state deficit by a further $4bn). But he has vowed to maintain costly items such as education spending. He also wants to make the state friendlier to firms. If he sticks to his word, Schwarzenegger will have to cut state spending.

He also has to win over a state legislature dominated by Democrats who are seething at the replacement of a Democrat governor with a Republican.

Indeed, the Governator appears to have found his most formidable foe yet: the Californian Dream. Californians want the highest quality of life with the lowest taxes. As far as balancing the budget is concerned, those things are incompatible.

To change that, Schwarzenegger will almost certainly have to bust some heads in state government. He may not have much of a plan but at least he has the muscles.