California employees pay state income and sales taxes. If you broke up a large company employing 10,000 Californians into 100 small companies employing 100 Californians each, not much would change.

I refer you to historical growth of California revenues http://www.dof.ca.gov/budgeting/budget_faqs/information/docu... It's boom-driven, so you get revenue shortfalls during bust years, but on the aggregate the revenues are growing - the $97 billion of revenues in 2013-2014 budget years is still higher than 5 or 10 or 15 years ago.

Perhaps if your revenue is consistently growing, and you still cannot run a balanced budget, the problem might be on the spending side?