Thread: Schwarzenegger takes step toward carrying out budget threat

Schwarzenegger takes step toward carrying out budget threat

The governor revokes the controller's authority to take out a high-interest emergency loan to keep the state running should talks fail. Democrats denounce his rhetoric.

By Shane Goldmacher
June 12, 2009

Reporting from Sacramento -- Gov. Arnold Schwarzenegger on Thursday followed up on his threat to block a high-interest loan that could be needed to keep California government running if he and state lawmakers fail to balance the budget soon.

The governor revoked the state controller's authority to take out such an emergency loan, a day after saying he was willing to bring state government to a "grinding halt" should budget talks stall. A loan would cost too much, he said, and give lawmakers an excuse to procrastinate.

Schwarzenegger threatens to shut down... Interactive: Can you balance the budget?Full coverage: California's state budget crisis

"What we need to do is just to basically cut off all the funding and just let them have a taste of what it is like when the state comes to a shutdown -- grinding halt," Schwarzenegger told The Times' editorial board Wednesday.

Controller John Chiang said this week that California government faces a "meltdown," with the treasury set to empty by late July unless the projected $24-billion budget shortfall is resolved quickly. Lawmakers believe they must act by July 1 to keep funds flowing.

Legislative Democrats reacted angrily Thursday to Schwarzenegger's statements.

"To threaten to shut down the state is, in the governor's own words, 'hallucinatory' and 'irresponsible,' " said a visibly frustrated Assemblywoman Noreen Evans (D-Santa Rosa) during a session of the Legislature's joint budget committee, which she chairs.

"Come on, governor," said Sen. Mark Leno (D-San Francisco). "We can do it, and we can do it together. Don't put out there that it's not going to get done and we're going to collapse the world."

The governor and Legislature remain far from a budget agreement.

Schwarzenegger has proposed deep service cuts and mothballing programs at the core of Democrats' vision for government: health insurance for low-income children, college scholarships and the state's welfare-to-work program.

Senate Democrats have countered with a sketch of budget revisions that would save those services by using most of Schwarzenegger's proposed $4.5-billion rainy-day fund.

Senate President Pro Tem Darrell Steinberg (D-Sacramento) said the governor's threat to block an emergency loan would have "no impact" on his approach to the budget.

shane.goldmacher@latimes.com

Times staff writer Michael Rothfeld contributed to this report.

http://www.latimes.com/news/local/la-me ... 4908.story

Why don't they drop all those million and billion dollar special interests projects?

Kick out the illegals and there is Billions saved.

He's trying to herd loonies and threatening them and going thru
with it is all that will work. If it doesn't hurt it won't get changed.

Calif. aid request rebuffed by Obama team

U.S. officials fear any bailout would trigger demands from other states

updated 3:02 a.m. PT, Tues., June 16, 2009

The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy — the state of California.

Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching "fiscal meltdown" caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California's fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states.

With an economy larger than Canada's or Brazil's, the state is too big to fail, California officials urge.

"This matters for the U.S., not just for California," said U.S. Rep. Zoe Lofgren, who chairs the state's Democratic congressional delegation. "I can't speak for the president, but when you've got the 8th biggest economy in the world sitting as one of your 50 states, it's hard to see how the country recovers if that state does not."

The administration is worried that California will enact massive cuts to close its deficit, estimated at $24 billion for the fiscal year that begins July 1, aggravating the state's recession and further dragging down the national economy.

After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.

These policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions.

California is among several states that have asked for a bailout from the Treasury Department. A few have gotten some traction, notably Michigan, whose economy is among the country's weakest and is struggling to deal with the fallout from the bankruptcies of General Motors and Chrysler. To stave off mass layoffs, Treasury officials are considering helping the state's auto suppliers stay afloat and convert their businesses to support other industries.

'Less than 50 days away from a meltdown'
California Controller John Chiang, a Democrat, warned last week that the state was "less than 50 days away from a meltdown of state government."

While its fiscal crisis is severe, experts say the state is unlikely to default on what it owes, even if it runs out of cash. It can raise money through taxes and other means to assure repayment of its debt. Most likely are massive cuts in public services.

"After June 15th, every day of inaction jeopardizes our state's solvency and our ability to pay schools and teachers and to keep hospitals and ERs open," Gov. Arnold Schwarzenegger (R) said Friday.

Problems unique to California have made it hard for the state to find a way out of its crisis.

The state entered the downturn burdened with an inflexible budgeting apparatus, constrained by a state ballot initiative approved by voters in 1978 that severely limited property taxes in California. The signature example of "ballot box budgeting" left the Golden State inordinately reliant on the personal income tax, which accounts for half of revenue to Sacramento.

California's budget is also heavily dependent on taxes paid on capital gains and stock options, which have been clobbered during the meltdown of financial markets. State budget analysts made their annual estimate of revenue a month before the crisis spiked in the fall and have been backpedaling ever since.

"Those revenue projections turned out to be wildly optimistic, but nobody was predicting the October collapse of the financial markets," said Michael Cohen, deputy analyst in the Legislative Analyst's Office.

Consider capital gains — income from sales of stocks or other assets. In California, that income dropped to $52 billion in 2008 from $130 billion a year earlier. It is estimated to be $36 billion this year.

By February, the shortfall was projected at $42 billion over two years. Lawmakers stared at the figure for weeks, stymied by the state constitution's requirement that the budget pass with two-thirds of the legislative vote and their own profound partisanship. The deadlock broke when a moderate Republican defied his caucus's pledge against any tax hike, but it didn't end there.

In April, budget analysts revised revenue projections downward by another $12 billion. And in May, voters overwhelmingly rejected the portions of the February deal that legally had to be put before them, taking $6 billion off the table.

To close an annual gap now put at $24 billion, Schwarzenegger and leaders of the legislature's Democratic majority have put aside talk of tax increases to concentrate on cuts. Most dramatically, Schwarzenegger would eliminate the state's basic welfare program, which serves 1.3 million.

Facing gridlock and few options other than severe cuts, California began to look to Washington for help. State Treasurer Bill Lockyer sent a letter to Geithner in mid-May, urging him to consider helping cash-strapped municipalities.

"A fiscal meltdown by California or any other large state or municipality would surely destabilize the U.S., if not worldwide, financial markets," Lockyer wrote. If the state were to default, it could shake bond markets and undermine investor confidence in a still-fragile financial system.

Revenue deteriorates
Tom Dresslar, a spokesman for Lockyer, said California will not default on its general obligation debts. But by late July, the state conceivably could run out of money to operate, as revenue continues to deteriorate while costs keep mounting. "The problem is getting worse, certainly not getting better," he said.

In testimony before Congress, Geithner did not rule out aiding California. But he was far from enthusiastic about such a proposal, instead suggesting that Congress was better positioned to help the states — and that states should balance their budgets.

"A lot of the burden," Geithner said, "is going to be on them to lay out a path that gets their deficits down to the point where they're going to be able to fund themselves comfortably."

Most members of California's congressional delegation have also been ambivalent about whether to press for federal help.

State officials are "not expecting any help from the federal government," Dresslar said. "At this point, we're on our own."

Today I saw in a CA paper that Arnold will not let any new taxes be added, he will only talk cuts.
Is that what's best?
I think it is, but it's not my state so it might be different there, or something I haven't factored in.

Originally Posted by WorriedAmerican

Today I saw in a CA paper that Arnold will not let any new taxes be added, he will only talk cuts.
Is that what's best?
I think it is, but it's not my state so it might be different there, or something I haven't factored in.

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