LOS ANGELES, Mon Jan 26,(bdnews24.com/Reuters) - Governor Arnold Schwarzenegger has expressed concern over California's $42 billion deficit during the current economic downturn, stating that the state is close to insolvency. California has seen more people leaving than any other US state due to issues such as heavy traffic, limited job opportunities, and high taxes. Despite the possibility of increased taxes and reduced public services, experts believe that California, the most populous US state and the world's eighth-largest economy, has the potential to recover and may undergo significant economic changes that will benefit the state in the long run. Economists and historians believe that California's abundant natural resources, strategic ports, access to the Pacific Rim, young workforce, entrepreneurial spirit, and focus on technology industries bode well for its future. Despite some challenges created by the government, such as the state's economic issues, experts like Jerry Nickelsburg from UCLA Anderson Forecast remain optimistic about California's prospects. Governor Schwarzenegger's recent somber message about the state's economy has garnered attention, but overall, the outlook for California is positive. "The state of California is currently facing a crisis," stated the former actor and bodybuilder, who will be finishing his second term next year. He emphasized the importance of addressing this crisis as the top priority for the people. The $42 billion deficit is a burden that is weighing heavily on the state and needs to be resolved urgently. Controller John Chiang then announced that $3.7 billion in tax refunds and other payments would be delayed due to the state running out of money. The current state of California is a stark contrast to the prosperous post-World War Two era, with rising incomes, ample land, affordable housing, and expansive freeways. The prosperous times abruptly ended during the 1973 OPEC recession, according to Dowell Myers, an urban planning and demography professor at the University of Southern California, and they have not fully returned. Economists point to California's heavy dependence on personal income taxes as a key issue, leading to fluctuating revenue levels. California, known for its entrepreneurial culture, faces challenges as entrepreneurs who thrive during economic booms may struggle during downturns. Proposition 13, a voter-approved amendment to the state Constitution, plays a significant role in the state's reliance on income taxes by limiting property tax increases and requiring a two-thirds legislative approval for any tax hikes. The 1978 measure is seen as the catalyst for anti-tax sentiment in other states and played a role in Ronald Reagan's election as U.S. president. Lawmakers have reacted by imposing high income and sales taxes on state residents. Economists believe the state has needed to address its revenue fluctuations for a long time and are optimistic that the current crisis will compel leaders to take action. They are not overly concerned about the number of people leaving the state, as California's large population makes comparisons with other states misleading. Additionally, California's population continues to grow due to immigration and births, and its young workforce may give it an advantage as baby boomers retire. According to some projections, California's population is expected to reach 60 million by 2050, which is six times the population in 1950 and 60 percent more than the current 38 million. Home prices in Southern California dropped by 35 percent in 2008 due to the mortgage crisis and foreclosures, making home ownership more attainable for young families. However, the state's unemployment rate reached a 14-year high of 9.3 percent in December, surpassing the national average of 7.2 percent. Despite these challenges, California remains a leader in industries such as green energy, biotechnology, and aerospace, which are expected to thrive in the global economy and create new job opportunities. Myers believes that in order to address the problems in California, drastic actions may be necessary to wake people up and force a reassessment. Jessica Gould, a graduate student at USC, is optimistic about the potential for change in California due to the current crisis. I am worried about the budget situation, to be honest. However, challenges can arise anywhere, and there are many other benefits of living here that I value. So, I consider it a minor inconvenience.