ALAMEDA, Calif. — California Gov. Arnold Schwarzenegger
Schwarzenegger projects the state will have $91.5 billion in general fund revenue in fiscal 2011, but faces a $17.9 billion shortfall, including a $7.7 billion deficit carried over from the current fiscal year. The administration uses a $19.1 billion deficit figure, after adding a $1.2 billion reserve.
State officials say California has adequate resources to retire the state’s $8.8 billion of outstanding revenue anticipation notes when they mature this month and next.
Controller John Chiang warned lawmakers that their prompt action is needed to avoid a repeat of the state’s cash-flow problems last year, when the controller’s office issued some $2 billion in IOUs to lower priority creditors to preserve cash for creditors with higher legal standing, such as bondholders.
“The governor and Legislature face $19 billion worth of extremely difficult decisions, and I urge them to quickly enact a balanced budget with real solutions so we can avoid the extreme forms of cash management I had to use last year,” he said in a statement.
The formal announcement of the governor’s “May Revise” budget sets the stage for the legislative budget debate to begin.
The new fiscal year begins July 1. Given the initial reactions to the budget, with legislative Democrats complaining about the cuts and Republicans drawing the line against any taxes, chances of an on-time budget appear slim.
The Republican governor, a lame duck, said efforts to trim social welfare programs have been blocked by court challenges against any changes. So he now proposes eliminating them completely.
“Because judges have prevented us from using a scalpel to trim those programs, we have to use an axe,” Schwarzenegger said.
It takes two-thirds votes in each house of the Legislature to adopt a budget — meaning that at least some bipartisanship is necessary, because the Democratic majorities don’t reach that two-thirds mark.
Common ground was not apparent Friday.
In a news conference immediately after the governor’s, Senate President pro tem Darrell Steinberg, D-Sacramento, called the governor’s budget a non-starter, and said his party will never pass a budget that eliminates the CalWorks welfare program.
“If, God forbid, this budget became reality, California would be the only state in the Union to not have a safety net for children,” Steinberg said.
“We’re not going to put California behind Mississippi,” he said.
Steinberg said he supported a new oil severance tax, extending temporary tax increases from last year, and well as the elimination of new business-tax breaks adopted last year to obtain GOP votes for last year’s budget.
But Republicans signaled that they had no interest in accepting new taxes.
“We won’t restore California’s economy by trying to tax our way out of our budget problems,” Sen. Bob Dutton, the ranking Republican on the budget committee and Senate Republican leader-elect, said in a statement after Schwarzenegger’s budget was released.
“New tax increases are off the table with Republicans, no matter how well they are disguised,” Assembly Republican Leader Martin Garrick said in his release.
Both Steinberg and Schwarzenegger appeared to share some common ground, as they talked about using the budget process to facilitate reforms.
But they each had different reforms in mind.
Schwarzenegger wants budget reform in the shape of a spending limit that is used to help build a large rainy-day fund to mitigate year-to-year revenue volatility. He also wants reduced retirement benefits for newly hired public employees.
“I will not sign a budget until we fix a broken system,” he said. “I won’t sign a budget until we have pension reform and budget reform.”
Steinberg said the state’s catastrophic budget situation should trigger a major realignment among the roles of state and local government agencies.
“Give programs to local governments and school districts, but give them restored revenues and the ability to raise those revenues themselves,” he said.
Much of the state’s budget revenue is simply passed through to cities, counties, and school districts, according to the Senate president.
“The entity that raises the money does not provide the services. We have come to the end of trying to prop up this failed structure,” Steinberg said. “There is no more triage. The status quo is unsustainable.”
