Dec 31, 2008 11:00 am US/Pacific
Schwarzenegger's New Budget Fix Plan For Calif.
SACRAMENTO, Calif. (AP) ―
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California Gov. Arnold Schwarzenegger toured the National Ignition Facility at Lawrence Livermore Lab on Monday, Nov. 10, 2008. (File)
CBS 5/CBS
Gov. Arnold Schwarzenegger's administration on Wednesday issued its latest plan to close the state's $41.6 billion budget deficit, calling the state's declining fiscal health "a major crisis."
State finance officials say California will run out of money sometime in February and will have to start issuing IOUs to employees and contractors — and to taxpayers in line for refunds.
The proposal calls for $14.3 billion in tax increases and other new revenue and $17.4 billion in spending cuts over the next 18 months. It also relies on borrowing and a plan the Legislature approved in early 2008 to sell bonds keyed to the future value of the state lottery.
"We are facing a major crisis, probably the most challenging budget situation the state has ever faced," state Finance Director Mike Genest said in releasing the plan.
He said it is imperative that lawmakers act quickly, and not just because the state is running out of cash.
If the recession deepens, Genest said, there could be even greater declines in tax revenue.
"The longer we wait, the harder and harder it gets," he said.
The proposal is unusual for covering the rest of the current fiscal year and the next one starting July 1, rather than just a single year.
The plan released Wednesday includes a proposal to borrow about $5 billion, but Genest said he wasn't sure when or how California would repay the bond — if it's even able to sell it. To borrow the money, Genest said the Legislature would have to pass an on-time, balanced budget and then see the nation's credit market recover by summer.
Schwarzenegger has so far been unable to persuade lawmakers to go along with his budget proposals, and it's not clear whether this latest plan will meet with any more success.
Republicans have refused to raise taxes, but Democrats and the administration say the budget deficit is too great to be addressed by spending cuts alone.
In early December, the governor declared a fiscal emergency and called the Legislature into its fourth special session of the year. He also signed an executive order forcing 235,000 state workers to take two furlough days a month starting Feb. 1 and requiring a 10 percent cut for state agencies, a step that could lead to thousands of layoffs.
The Legislature has passed a plan calling for $18 billion in cuts and tax increases, but Schwarzenegger has promised to veto it, saying it failed to include sufficient steps to stimulate the economy.
Assembly Speaker Karen Bass, D-Los Angeles, said Democrats intend to send Schwarzenegger that plan, despite his latest proposal.
"It's completely unacceptable and unnecessary for the state of California to issue IOUs when there's a solution right there that only requires his signature," Bass said in a telephone interview after the governor's two-year fiscal plan was released.
(© 2010 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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