Schwarzenegger: $42B deficit weighing down California

SACRAMENTO (AP) — California Gov. Arnold Schwarzenegger on Thursday called the state's massive budget deficit a "rock upon our chest" and said the crisis must be resolved before other policy issues are addressed.

"The truth is that California is in a state of emergency. Addressing this emergency is the first and greatest thing we must do for the people," the governor said in his State of the State address before a joint session of the Legislature. "The $42 billion deficit is a rock upon our chest and we cannot breathe until we get it off."

California's budget deficit is expected to soar past $40 billion over the next year and a half, the financial and construction industries have been decimated by the housing collapse and unemployment is on the rise.

Legislators have been at odds for months over how to close the gap, and state financial officials say California will have to start sending IOUs to state contractors and taxpayers expecting refunds next month if the budget is not fixed.

In that climate, the Republican governor's annual address was more austere than usual. Such speeches often are lengthy, filled with new policy ideas and held in the evening; this one took less than 20 minutes and was over before 11 a.m.

Schwarzenegger warned that California, which would be the world's eighth-largest economy if it were a country, faces insolvency within weeks if lawmakers fail to close the widening deficit.

Schwarzenegger said the state's financial problems are so pressing that no other issue — including education, water policy or health care — can be addressed until its budget problems are resolved.

"Let me tell you, I have big plans for this state. They include action on the economy, on water, environment, education, and health care reform, government efficiency and reform, job creation, and the list goes on and on," Schwarzenegger said. "But our first order of business is to solve the budget crisis."

Closing California's deficit will require billions in spending cuts. Schwarzenegger has ordered state workers to take two days off a month without pay, starting in February, while departments have been asked to take 10%, across-the-board cuts.

Public works projects have ground to a halt because the state no longer can pay for them, and teachers in some school districts have received layoff warnings as the state runs low on cash.

The sticking point in budget negotiations has been raising taxes. Schwarzenegger and Democrats have proposed raising a variety of taxes, but have not agreed on the form those should take. Legislative Republicans — a minority in both houses but powerful enough to block tax hikes — have refused any tax increase but have yet to show how they would cut $42 billion over the next two fiscal years to balance the budget.

The governor's latest budget plan proposes $17.4 billion in spending cuts, $14.3 billion in tax increases and $10 billion in borrowing to close the deficit through June 2010.

On Thursday, Schwarzenegger said lawmakers were engaged in "serious and good faith negotiations" but also criticized them. He said they were more devoted to party ideology than working for the people who elected them.

In the future, he said, lawmakers and the governor should not receive their salaries or daily expense money for each day they miss the constitutional June 15 deadline for producing a budget. Schwarzenegger, wealthy from his previous movie-star career, does not take a salary from the state.

"If the people's work is not getting done, the people's representatives should not get paid either. That is common sense in the real world," he said.
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