Tags: california | budget

Schwarzenegger Warns of 'Financial Armageddon'

Thursday, 11 Dec 2008 06:12 PM

SACRAMENTO, Calif. — California's budget deficit will reach $41.8 billion over the next 18 months, a figure far worse than already abysmal previous estimates, Gov. Arnold Schwarzenegger's office said Thursday.

An earlier projection by the Legislature's nonpartisan analyst had pegged the gap at $28 billion through June 2010.

The shortfall for the current fiscal year, which ends June 30, has grown to nearly $15 billion. That together with deficit estimates for the next budget year total $41.8 billion, said Matt David, a spokesman for Schwarzenegger.

California is projected to run out of cash in February and may have to issue IOUs for its bills. State Treasurer Bill Lockyer also had warned the state will have to stop financing $5 billion in infrastructure projects next week unless lawmakers agree to take action.

The state already has lost its ability to borrow because of its fiscal mess.

The governor declared a fiscal emergency for the second time this month.

California leads the nation in the sheer size of its budget gap, according to the most recent survey of states by the National Conference of State Legislatures.

Fourteen other states are facing double-digit percentage gaps in their 2010 fiscal year budgets, with Arizona and New York leading the way in the percentage size of their deficits, followed by California, Wisconsin, Minnesota and Kansas.

Schwarzenegger said Wednesday that sales, personal and corporate tax collections had continued to tank, and that the state was "heading towards a financial Armageddon."

He also said that the shortfall for the current fiscal year was $3.6 billion higher than the deficit that lawmakers had been unable to solve during two special sessions of the state Legislature.

California has a particularly hard time passing budgets because of its stringent budget vote requirements. It's one of three states — along with Arkansas and Rhode Island — that require two-thirds majorities to pass a budget and one of seven states that require two-thirds of the votes to pass taxes.

Because of that, the Republican minorities in the state Assembly and Senate hold unusual sway in negotiations.

This summer brought about the longest budget stalemate in state history at 85 days, and the November election left Democrats three votes shy of a supermajority in both houses.

Democrats and Republicans have been unable to reach consensus on how to close the shortfall caused by the troubled housing market and economic recession.

Republicans have remained steadfastly against raising taxes, rejecting a Democratic proposal for $8.1 billion in cuts and $8.1 billion in tax increases. They had failed to present their own plan, but promised to release a package next week that is expected to contain spending cuts, a cap on future spending and relaxing labor and environmental regulations.

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