Outgoing California Governor Arnold Schwarzenegger declared a fiscal emergency on Monday and proposed $9.9 billion in mainly spending cuts to close the state's current-year budget shortfall.
The Republican governor also called lawmakers into a special session on the budget. But Democrats who control the Legislature have signaled they are likely to ignore his plan, as Democratic Governor-elect Jerry Brown will assume office next month and present his own budget.
Brown intends to meet with lawmakers and state finance officials Wednesday to discuss the budget situation, which includes a deficit of $6 billion for this year.
Schwarzenegger's $9.9 billion package of budget-gap solutions includes $7.4 billion in spending cuts and $1.6 billion of funding shifts and miscellaneous revenue.
"If there is one thing we have learned over these past few years, it is that the longer we wait to tackle the problem, the larger and more difficult it is to solve," he said in a statement. "That is why I have called a special session today, so the legislature can get a head start on the problem."
Schwarzenegger then told a news conference that most of the cuts would come from health and human services, adding: "I always said that I would go and charge through the finish line."
Analysts said Schwarzenegger's plan is largely symbolic.
"Politically, it's a wish list — emphasis on the word 'wish,"' said Hoover Institution fellow Bill Whalen, who used to work for former California Governor Pete Wilson.
"A, You have a Democratic legislature not particularly fond of Arnold at the moment, and B, you have a Democratic governor coming in a month. It's not like they're dying to do the governor one last favor in his closing days," Whalen said, noting many lawmakers are nursing bruised feelings from recent line-item spending cuts.
Marilyn Cohen, president of Envision Capital Management in Los Angeles, said Schwarzenegger's plan would be dead on arrival with Democratic lawmakers. But she said they and Brown are likely to have to make cuts in some of the programs targeted by Schwarzenegger.
"I'm certain that health and human services is going to have cuts because we simply don't have the money," Cohen said. "As they run out of money and out of love from the municipal bond market I think they'll have to — but not until the bond market presses the issue."
"We've talked about bond vigilantes. Well, there are retail muni bond vigilantes, too," Cohen said. "We saw them a few weeks ago selling the hell out of the muni market all across the nation, so just think of the ugliness if they concentrated on California."
Despite California's ongoing budget deficit woes, Rick Ashburn, chief investment officer of Creekside Partners in Lafayette, California, said he has no concern over payments to state bondholders, given the structure of the California Constitution. It makes debt payments one of the state government's top priorities.
"Everybody else is not going to get paid, that is the worry," Ashburn said.
After taking office, Brown must also deal with a projected $19.3 billion shortfall for the next fiscal year beginning in July, the same size deficit that Schwarzenegger and lawmakers closed in October after a record impasse over a spending plan.
That represents a massive shortfall given the state's current general fund budget is $86.6 billion, adding to concerns in financial markets about the financial health of the state, which is the largest U.S. municipal debt issuer.
California is also the most populous U.S. state and would have the world's eighth-largest economy if it were a country. The ability to spend as much as its leaders and voters would like on popular programs, such as public schools, higher education and roads, has been battered in recent years.
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