I feel a great deal of the decline has to do with the liabilities California notaries now face. Example: Penalty for not getting a thumbprint on a Power of Attorney is $2,500.00, not giving the oath/affirmation for a Jurat is $750.00. Some individuals are simply afraid. The other is cost.
Personally, the penalties have not bothered me. Simply follow the laws and you will be okay.
I think it is mostly the decline of the CA economy and the lost of notary loan signing assignments because of the tank of the mortgage industry. Also, CA is the most difficult state to become a notary. Test, fingerprints, bond/etc. I think we will level off in 2011 at approx 164,000 notaries and unless the economy or housing market improves we will probably have 160,000 CA notaries for several years.