California governor, lawmakers agree on state budget
California Governor Arnold Schwarzenegger and top lawmakers agreed on Monday to close a $26.3 billion deficit in the state’s budget in a deal that includes $15.5 billion in spending cuts, they said.
The government of the most populous U.S. state, also the world’s eighth-largest economy, began its fiscal year on July 1 facing the massive shortfall due to a plunge in revenues caused by the recession and rising unemployment.
Schwarzenegger, a Republican, said during a news conference the budget would be balanced through deep spending cuts and borrowing and shifting of state funds but without raising taxes.
“All around I think it is a really great, great accomplishment,” said the former Hollywood action star, noting the closing rounds of budget talks, which dragged on for weeks, had been like a suspense movie.
The Legislature’s top Democrats and Republicans said they would brief rank-and-file lawmakers on the agreement in the hope of holding votes in the Democratic-controlled state Assembly and Senate on Thursday.
Democratic leaders acknowledged the agreement contained painful spending cuts in popular programs, the result of mounting financial woes for the state’s government since 2007.
Public schools, colleges and universities would lose $9 billion in funding, prisons more than $1 billion and cities and counties roughly $4 billion. Many state employees would have to take three furlough days each month through June 2010, which amounts to a roughly 14 percent pay cut low rate car insurance.
“There isn’t a whole lot of good news in this budget,” said Senate President Darrell Steinberg.
STATE’S ECONOMIC WOES
The state’s revenues have been sliding amid the lengthy housing slump, the mortgage crisis and credit crunch, turmoil on Wall Street, the recession and rising unemployment.
State officials reported on Friday that California’s jobless rate in June was unchanged from May at 11.6 percent, its highest level in modern state records, and up from 7.1 percent a year earlier.
Double-digit unemployment is striking hard at the money the state collects in personal income taxes, its biggest revenue source. Those revenues are suffering their worst decline since the Great Depression.
Consumers have also been sharply reining in their spending, resulting in a drop in revenues from retail sales taxes.
Wall Street has grown increasingly nervous about California’s finances and has the state government on notice to expect higher borrowing costs as it prepares to sell short-term debt after Schwarzenegger signs the budget into law.
In the spending plan, the governor and lawmakers included an $875 million reserve to help ease concerns at credit rating agencies.