2010: More Budget Pain For California

During last summer's fiscal crisis, Gov. Arnold Schwarzenegger borrowed the title of a film classic to describe California's budget, saying it contained "the good, the bad and the ugly."

He was referring to welfare reforms and the streamlining of state boards that he was able to broker, along with deep spending cuts for schools, health care programs for the poor and AIDS-prevention efforts.

All that's left in 2010 is the ugly.

The nation's most populous state faces a nearly $21 billion shortfall over the next 18 months, a deficit that comes after years of making deep cuts in core state programs.

Enrollment in California classrooms could swell, public colleges may further limit enrollment and raise student fees, state workers could face another year of furloughs, and the poor may stop receiving welfare unless Schwarzenegger and lawmakers agree to raise revenue.

"It will be an absolutely hard and difficult year," said Assemblyman Ted Lieu, D-Torrence, who is exploring a run for attorney general.

As the Republican governor winds down his tenure, he faces one last budget battle, the legacy of a recession that has upended California's economy and choked the flow of tax revenue coming to government. The crash in tax revenue has depleted California's general fund, which has fallen from a high of $103 billion in 2007-08 to $84.6 billion in the current fiscal year.

While Democrats are expected to make a play for tax hikes, Republicans can be counted on to push back. Both fear voter revolt in an election year, creating the likelihood of political stalemate and yet another drawn-out budget tug-of-war.

Since February, California has made nearly $60 billion in adjustments to its annual spending plan. That has come in the form of cuts to education and social service programs, temporary hikes in the sales and income taxes, an increase in the vehicle license fee and one-time infusions of cash from the federal stimulus package.

The stimulus funding and temporary taxes will begin to end at the end of 2010, leaving less revenue for the second half of the fiscal year that will begin in July. Compounding California's problem are lawsuits that have reversed several of this year's budget decisions, contributing to a $6 billion deficit in the current fiscal year.

The state also has been unable to adopt prison and health care cuts it passed in the last budget.

California's fiscal troubles are felt throughout the country because it is such a powerful economic engine, accounting for 12 percent of the nation's gross domestic product and the largest share of retail sales of any state.

Its financial problems are felt in many other states, as well. Nationwide, states closed a cumulative budget gap of nearly $146 billion in the current fiscal year caused by falling income, sales and corporate tax collections.

According to the National Conference of State Legislatures, three dozen states reported that budget shortfalls have re-emerged even before their fiscal years have ended.

The Denver-based group says they face a cumulative budget gap of $55.5 billion in the coming fiscal year, which begins in July for most states. States that include Arizona, Colorado, Hawaii, Iowa, Maryland, Nevada, New Jersey, New York and Vermont are again facing double-digit gaps.

"The problems are not getting better," said Arturo Perez, fiscal analyst with the group.

Even if the recession ended, it typically takes state governments another year or two to recover. That means more cuts, taxes and difficult choices ahead, Perez said.

Schwarzenegger is expected to unveil his latest spending plan in early January with cuts, requests for billions in additional federal aid and tax changes that include raiding a fund fed by a gasoline tax.

He also could bring back previous proposals that failed, such as authorizing additional oil drilling off the Santa Barbara coast.

The governor is expected to press his case in Washington. He has repeatedly pointed out that California receives about 79 cents for every dollar it sends in federal taxes.

In a Dec. 22 letter to House Speaker Nancy Pelosi, Schwarzenegger said the federal reimbursement rate for state Medicaid programs forces California to subsidize health costs for other states. He wrote that if California received a reimbursement rate equal to the average of the 10 largest state, it would be receiving billions more each year.

He has threatened to eliminate other social programs such as the in-home care program for frail seniors and the disabled unless the federal government makes adjustments.

"We reduced services to specified populations in our In-Home Supportive Services program, but federal court decisions have prevented those reductions from occurring," Schwarzenegger said in his letter. "California is now faced with a decision to eliminate the entire IHSS program."

He also could threaten to eliminate CalWORKS, the state's main welfare program, as he did last year.

Anthony Wright, executive director of Health Access California, a labor-sponsored health care advocacy group, said the governor's approach reflects California's budget constraints. The state carries an unusually high two-thirds vote requirement to pass a budget or tax increases, and lawmakers have limited discretion on spending because much of the money has been locked in by voter-approved ballot initiatives.

While the federal government may give states a second round of assistance, they should not count on a bailout, said Scott Pattison, executive director of the National Association of State Budget Officers in Washington, D.C. He said the stimulus funding was only a temporary fix.

"If states don't recognize they need to do some serious financial reforms, it would really be a shame and postpones hard choices," Pattison said.

It's not clear whether California lawmakers have the political will, especially during an election year, to enact long-term budget reforms. A bipartisan tax commission created by Schwarzenegger and Assembly Speaker Karen Bass, D-Los Angeles, recommended sweeping tax overhauls that could end years of topsy-turvy budgeting.

In September, the panel recommended repealing the sales and corporate taxes, flattening the income tax rate and imposing a new type of tax on a wider variety of businesses that would include the service sector. The recommendations have failed to gain any traction in the Legislature.

Copyright 2010 by The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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  • by radog Location: newport on Jan 11, 2010 at 11:59 AM
    most likely they will pay for play Arnald for his vote and he will be quite again .did'nt you ever hear about the squeaky wheel always get's greesed .
  • by Obama Snake Oil Co Location: Washington on Jan 6, 2010 at 05:31 AM
    Audra, Ca is near bankrupt because of the liberal agenda. Calicare, taking care of illegals and providing santuary....we really don't want that here. I will guess our transplants in Raleigh, the ones that pass outrageous laws......are not from here or just follow the liberals in the party. Bev is an example, Kay.....one termers.
  • by US citizen for now Location: Washington on Jan 5, 2010 at 06:50 AM
    Audra, you've got me all wrong. I don't hate people first of all. Don't judge me. Second, it's the sin I hate. Sin which is mounting up and getting worse by the year. Yes, throughout out country. Do you know what sin is? or even care? I'm not even sure you care anymore. God does so why shouldn't we. Another country sounds great but I'd miss the security and quality of life. It's the horrific sin I was fussing about.
  • by Audra Location: SoCal on Jan 4, 2010 at 09:34 PM
    Again, you're describing the entire country, not one state. Either way, you're just running out of places to live by the minute - hate NC, hate CA, doesn't sound like NY is an option either. Maybe you should just follow through on your chosen handle and find another country since you hate it here so much. I'll stay here and enjoy the smoke-free areas you've vacated. :-D
  • by US citizen for now Location: Washington on Jan 4, 2010 at 01:10 PM
    Audra, I love "radical diversity" in the geographical sense, not in the sense relating to humanity. CA represents and promotes dis functionality within the American family, government etc.. Everything that is against our "ten commandments" which our law system derived from. Even the sick evils relating to gays & lesbians and promoting/pushing their agendas on the rest of the country. Violence, murder, drugs/alcohol/partying, adultry, fornication, idolatry and every other evil thing we should flee from is promoted in our grand ole state of CA. Wow, what a shame. The rest of the country is far far from what CA has become. NY could stand in line second in comparison. I like Atlanta and many other cities but hate what they've become. This all is due to the Liberals that took office in many seats of power which changed our laws and invited the true enemy in (satan) to corrupt our society. He's done a great job in doing that but, the blame is on who let him in which are the Liberal democrats
  • by Obama Snake Oil Co Location: Washington on Jan 4, 2010 at 11:21 AM
    Amazing post Anonymous, its not OK to smoke and second hand is nonsense (do you believe mouthwash is more dangerous than drinking a bottle of gin mentality), but its OK to suck the brains our of unborn infants...I have posted more on Witns story of Smoking Ban in NC.
  • by Audra Location: SoCal on Jan 4, 2010 at 11:11 AM
    Oh, I hear ya (Love San Diego). Having grown up here, there is a lot that I love here too. I've lived in other states & regions though & the thing I can't get past every time I end up back here is there are just to many people. My family still lives in L.A. county, but you couldn't pay me to move back there. Visiting them is a chore purely because it takes me 3 times as long to go a few blocks as it does where I live. US Citizen for now: Re the problems here, you just described the majority of the country, not an individual state. CA is also not THAT beautiful, when you look at what others in the country have to offer. It has some nice areas.. but it's not all that. The only thing we can offer that others can't is radical diversity in a small distance. Mountains, desert, woodlands, ocean, lakes/rivers, etc. & if you like that, great. It's neat if you want different scenery. It would be nice if all the trees weren't dying, of course. Back: Hollywood isn't the only place movies are made.
  • by Anonymous on Jan 4, 2010 at 10:45 AM
    Oh hey US Citizen. So it's a right and a choice to smoke and that's ok, even if it affects those unborn babies you don't want murdered? You really need to pick which side of the fence you are on with some of these things.
  • by Obama Snake Oil Co Location: Washington on Jan 4, 2010 at 10:18 AM
    US Citizen, the state that won't let their own people smoke tobacco on the beaches, allows them to smoke marijuana....wwhhhhhaaaaattt? Remember the cigar bars? Out of business! I went to a bar in San Diego several months ago and ordered a domestic beer. $6 bucks. Taxes and the fact not many people frequent them. Locals told me their property taxes were outrageous. Jobs were leaving Ca since owners couldn't afford the new taxes put on them. Whole companies moved. What "Back" posted is true. When you harbor illegals in large numbers, you pay. Why? Liberals support this and don't care if you have to support them, just like in NC. If you think having illegals doing work here doesn't cost as much? Think again. Our healthcare is number one, illegals don't pay income taxes for state of federal, social security is hit, all feeding off the system that allows em to. If you are a liberal and think this will not effect you, better pay attention.
  • by Anonymous on Jan 4, 2010 at 08:58 AM
    This is just the beginning of what is comming to the rest of the US. Thanks for the change Obama.
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