Schwarzenegger worried by worsening state budget
October 7, 2008
SACRAMENTO – Gov. Arnold Schwarzenegger will call legislative leaders back to the Capitol today to address California’s mounting financial problems.
On the agenda is a possible special session of the Legislature to discuss how to close gaps that are appearing in the state budget, which was signed into law just two weeks ago.
“We have to even make additional cuts as times go on, because I think there will be even less revenue,” the governor warned Tuesday while addressing the American Magazine Conference in San Francisco.
Revenue for the first quarter of the state’s fiscal year is down $1.1 billion from the projections in the governor’s May revision to the budget, state Controller John Chiang reported Tuesday. Spokeswoman Hallye Jordan said the controller could not immediately determine how far the numbers are off from the budget Schwarzenegger signed Sept. 23.
“Revenues are deteriorating faster than expected, and September’s cash flows send strong signals that the recently enacted budget is more out of balance than we feared,” Chiang said in a statement.
The controller warned that higher unemployment and poor projections for the holiday shopping season offer little hope for a quick recovery. In addition to sales tax, the state’s budget relies on state income tax and capital gains taxes, which are affected by the stock market.
Recommended Stories For You
As the economy worsens, some lawmakers fear the state could face another multibillion-dollar deficit next year.
Assembly Speaker Karen Bass, D-Los Angeles, said the billions in cuts already made this summer could leave lawmakers no other choice but to raise taxes. Schwarzenegger vetoed another $510 million.
Senate Minority Leader Dave Cogdill, R-Modesto, objected to the possibility of higher taxes – an indication that the same partisan divide that led to a record-length budget impasse this summer would persist.
“Why would we want to do even further damage to an economy that’s already suffering?” Cogdill said.
The more immediate concern is the state’s ability to pay its day-to-day expenses. The ongoing national credit crisis means the state may have trouble selling $7 billion in short-term bonds next week.
Chiang estimates the state will temporarily run out of cash by Oct. 29 if it can’t sell the bonds. The state routinely borrows to keep paying its bills until tax revenue begins flowing in April, but the frozen credit market has presented an unexpected complication this year.
Schwarzenegger sent a letter last week to Treasury Secretary Henry Paulson asking if the state could borrow from the federal government if the state is unable to sell the bonds.
If the normal credit channels are closed, California is considering borrowing directly from banks or selling the bonds in several forms to attract different investors, said Tom Dresslar, spokesman for state Treasurer Bill Lockyer.