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Strapped For Cash And Out Of Credit, California Eyes Cuts

By Lyle Wohlfarth

With our state facing a $24 billion deficit and the threat of fiscal insolvency within 14 days, Governor Schwarzenegger addressed a joint session of the legislature on Tuesday to present his proposals for the May Revision of the state budget. These proposals are the latest development in Sacramento's search for a solution to the problems posed by the recession.

On February 21, the governor signed a budget which depended on the passage of the May 19 initiatives.  Their dramatic failure at the polls sent Sacramento back to the drawing board. Schwarzenegger says the message from the voters was clear : 

"Do your job. Don't come to us with those complex issues. Live within your means. Get rid of the waste and inefficiencies and don't raise taxes."

In the last year, California has seen a 27% drop in tax revenues, which, when adjusted for inflation, means the government is addressing 2009 problems with 1998 resources. Though undoubtedly influenced by the global recession, Schwarzenegger attributes the extremity of situation in Sacramento to "California's outdated and volatile tax system." 

gov_beforelegislature.pngGiven the limited funds and the electoral mandate against further borrowing or other quick fixes, the governor proposed to balance the budget through spending cuts, consolidation of state agencies, and other reforms in what he calls a "transformation of what services Sacramento can provide and how those services are delivered."

According to the governor's proposal such a transformation would include a restructuring of the way Sacramento interacts with local government. In an attempt to view this crisis as an opportunity, cuts in spending would be accompanied by reductions in regulations, freeing local jurisdictions from the "heavy hand of Sacramento."

While acknowledging that he "sees the faces behind those dollars" and promising not to "make it just about cuts," Schwarzenegger "necessary" reductions for the three largest budget items: education, health care, and prison systems. He also emphasized opportunities for positive spending cuts, such as digitization of textbooks, or privatization of prisons.

The governor did not mention previously discussed plans to save money through the closure of more than 100 state parks, except to promise that such cuts would come only after redundant or unnecessary state agencies, such as the Waste Management Board, are consolidated or eliminated.

In addition to the various cuts and consolidations, Schwarzenegger also announced his anticipation of the report of the tax modernization commission, which he hopes will provide a "tremendous opportunity to make our revenues more reliable and less volatile and to help the state avoid the boom and the bust budgets that have brought us here today."

Darrell Steinberg (D-Sacramento), Senate President Pro-Tem, while acknowledging the need for cuts, emphasized that they should be "surgical" to minimize damage to important programs.

All in all, the legislature has its work cut out for it to make sufficient progress to address the state controller's two week horizon and to finalize the budget by their July 17 recess.  The 2009-2010 fiscal year begins on July 1.