Schwarzenegger Will 'Declare Fiscal Emergency' In Weeks

POSTED: 2:06 pm PST December 14, 2007
UPDATED: 2:47 pm PST December 14, 2007


Gov. Arnold Schwarzenegger said Friday he will declare a "fiscal emergency" in January to give him and the Legislature more power to deal with the state's growing deficit.

Schwarzenegger made the announcement Friday after meeting with lawmakers and interest groups this week to tell them California's budget deficit is worse -- far worse -- than economists predicted just a few weeks ago.

The shortfall is not $10 billion, but more than $14 billion -- a 40 percent jump that would put it in orbit with some of the state's worst fiscal crisis, those who have met with him said.

A fiscal emergency would trigger a special session and force lawmakers and the governor to begin addressing the shortfall within 45 days.

"What we have to do is fix the budget system. The system itself needs to be fixed, and I think that this is a good year, this coming year, to fix it," Schwarzenegger said in Long Beach, where he was promoting his plan for health care reform.

California is struggling with shrinking state tax revenue from the meltdown of the subprime housing market and the credit crunch on Wall Street.

State spending also has increased by more than 40 percent since Schwarzenegger took office after the 2003 recall of then-Gov. Gray Davis.

Schwarzenegger in August signed a $145.5 billion budget that increased spending 11 percent due largely to the increased cost of bond repayments and special funds. General fund spending for day-to-day operations increased less than 1 percent, from $101.7 to $102.3 billion for the budget year that began July 1.

In August, Schwarzenegger's office projected the state would end its current budget year with a $4.1 billion reserve. Last month, the state's nonpartisan legislative analyst reported that the state would instead end the year in the red, and was on pace to rack up a staggering $10 billion deficit over the next 18 months.

Schwarzenegger and his top aides this week have privately told lawmakers and interest groups that the gap could top $14 billion and warned cities, counties and health and welfare agencies to expect cuts.

Last month, Schwarzenegger ordered agency leaders to draft plans for across-the-board cut as high as 10 percent.

State lawmakers have been criticized in recent weeks for pushing through a raise for themselves, despite the state's fiscal troubles.

They say that New York and California run hand in hand with it's governing ideals and high taxes. So Shadow this may be exactly where NYS is heading.

Quoted Text

Gov. Arnold Schwarzenegger said Friday he will declare a "fiscal emergency" in January to give him and the Legislature more power to deal with the state's growing deficit.

When elected, their job (never mind the traveling, dinner parties, freebies etc), is to always be in control of the ALREADY EXISTING fiscal emergencies in their states.....duuuhhhh.....if it isn't important when they are running and elected then it isn't important when they are jet setting around......

I ask -----was keeping track, prioritizing and keeping things buckled up with tax $$ collected not important these past years?????

bottom line----it is their fault........THEY ARE ACCOUNTABLE----time to tighten the reigns or cut the head off of the serpent.......

California’s sweeping budget cuts draw fire
By Matthew Garrahan in Los Angeles

Published: January 17 2008 18:36 | Last updated: January 17 2008 18:36

Arnold Schwarzenegger’s tough stance on climate change and a recent willingness to engage with Democratic rivals in the California state legislature has won praise and backing from across the US political spectrum.

But a series of drastic spending cuts announced in the last few days, aimed at reducing a gaping $14.5bn (€9.9bn, £7.4bn) budget deficit has taken the sheen off the former movie star’s tenure as California governor.

EDITOR’S CHOICE
Lex: Wildfires in California - Oct-28Homeowners face shortfall for rebuilding costs - Oct-25Californians return to assess fire damage - Oct-27Video: California damage - Oct-25Editorial comment: California dreams - Oct-25Bush inspects damage in California - Oct-25Mr Schwarzenegger has caused a public outcry with a series of measures aimed at curbing spending. The radical proposals include cutting the state’s education budget, closing some of its most popular parks and releasing some prison inmates early.

The governor says he is sticking to a promise not to raise taxes, arguing that California must face its “budget demons”. The state, he says, is spending $400m-$600m more each month than it is generating.

Despite the huge deficit he denies the state’s economy is in trouble, pointing to growth in technology, agriculture and private equity.

But leading economists disagree. Ross DeVol, director of regional economics at the Milken Institute and a member of the California Controller’s council of economic advisers, believes the state went into recession at the end of last year. “I wouldn’t want to have the governor’s job right now,” he says.

It is unclear how the state will fix its budget mess. Tax cuts to stimulate the economy are unlikely because of the size of the deficit and the risks of reducing government revenue. California has issued billions of dollars in bonds to finance infrastructure improvements and the cost of servicing those bonds will increase if the deficit widens, according to the state Treasurer’s office.

But increasing taxes may not have the desired effect either, says Mr DeVol. “Schwarzenegger is in a bind. If you increase taxes it will hurt the state more because people will spend less money. So the state is limited in what it can do.”

Economic growth has stalled following the decline of the subprime lending market and sharp falls in property values.

The subprime collapse has had a direct impact on state revenues: house price sales have dried up which has, in turn, reduced property tax collections. This has hit state coffers by $1bn during the past two financial years, according to Bill Lockyer, California’s Treasurer.

“The economic downturn has deepened our budget hole by preventing revenue growth from keeping pace with spending growth,” says Mr Lockyer. “And it has brought into sharper relief our ongoing, long-term structural budget problem, namely our chronic inability to match revenues with expenditures.”

Mr Schwarzenegger recently unveiled a budget that included a plan to establish “rainy day” reserves to prop up state finances during an economic downturn. The proposal has received broad support, although the economy needs to improve again before the state can begin building reserves.

Mr Lockyer supports some elements of Mr Schwar-zenegger’s budget. But he says the governor has not seriously addressed “the revenue side of the equation”.

“To permanently fix our financial house, to ensure we can pay for vital services and the infrastructure we need for our growing state, we have to change not only the way we spend money but the way we raise money. The governor’s plan is missing that crucial ingredient.”

Some reports have suggested that the highly emotive cuts proposed by the governor are part of a calculated plan to ready the ground for tax increases.

However, an increase in taxes would likely face a barrage of opposition. “The governor has wisely avoided piling new taxes on Californians at a time when a record number of people are losing their homes,” says Teresa Casazza, acting president of the California Taxpayers’ Association.
Copyright The Financial Times Limited 2008

Quoted Text

Mr Schwarzenegger recently unveiled a budget that included a plan to establish “rainy day” reserves to prop up state finances during an economic downturn.

If he can cut spending to it's bare minimum and not raise taxes and establish a rainy day reserve, I think all states should use California as the litmus and carbon copy the idea!!