Fiscal emergency for California
SCHWARZENEGGER TO TRIGGER PROCESS TO PRUNE EXPENDITURES

By Steve Geissinger
Mercury News Sacramento Bureau
Article Launched: 12/15/2007 01:32:12 AM PST

"SACRAMENTO - Facing a projected $14 billion budget deficit, Gov. Arnold Schwarzenegger on Friday said he will declare a fiscal emergency, which will allow the governor and lawmakers to cut spending more quickly and also sets the stage for slashing state services and programs - perhaps by as much as 10 percent.

Legislative leaders said they will meet with Schwarzenegger next week to begin working on what the governor described as "across-the-board" cuts. His aides said departments have been told to prepare for a range of possible cuts, with 10 percent a central figure.

"We are going to call this January for a fiscal emergency when the legislators come back," Schwarzenegger said. "We will make that announcement next week sometime with the legislative leaders."

California's fiscal crisis, which is beginning to approach levels that contributed to the 2003 recall of Gov. Gray Davis, is due primarily to a collapsed housing market and related woes in the subprime mortgage industry.

It doesn't help that while revenues are especially volatile - disproportionately reliant on income taxes - the state has a number of fixed costs as well as guaranteed funding adopted by voters, most notably for public education.

Much of California's general fund budget, which totals $102 billion for the 2007-08 fiscal year that began July 1, is designated for education, transportation and other uses. Therefore, cuts often fall disproportionately on social services and the poor, elderly and disabled residents who rely on them.

Assembly Speaker Fabian Núñez, D-Los Angeles, indicated in a statement that dealing with a fiscal emergency will not be easy.

"We look forward to seeing the specific proposals the governor is constitutionally required to put forward in declaring a fiscal emergency,"

Núñez said. "We are committed to working with him to address the ongoing imbalance between the services Californians require and the resources to fund them, and not drawing any lines in the sand."

Alicia Trost, a spokeswoman for state Senate leader Don Perata, D-Oakland, said, "We will take it seriously and respond."

Democrats, who dominate the Legislature, have little choice but to cooperate with the Republican governor because of a voter-approved 2004 initiative that permits the governor to declare an emergency when revenues are substantially below what was anticipated upon signing of the budget. It also allows reductions midway through a fiscal year.

The proposition also requires the Legislature to pass and send to the governor legislation to address the fiscal emergency within 45 days. If not, the Legislature is prohibited from acting on any other bills or adjourning in joint recess until such legislation is passed.

This is the first time Schwarzenegger has exercised the authority.

Since the governor signed the current budget in August, the economy has weakened, due largely to a slump in the housing market.

Legislators, who are already scheduled to return for the second year of their two-year 2007-08 session in January, will consider the fiscal emergency on a separate "special session" track, aside from regular business.

The state's gap between revenues and spending has become a perennial problem - one that Schwarzenegger vowed to solve immediately when he became governor during an unprecedented recall election in which Davis was ousted.

"This is a common thing for California, that we're going on this roller coaster ride," Schwarzenegger said Friday during a speech in Long Beach to promote his health care plan. "What we have to do is fix the budget system."

One thing the governor said lawmakers could do to help ease the budget pinch is to pass his health care plan. Schwarzenegger estimated that his plan would bring in an additional $4 billion in federal Medi-Cal funding - money he suggested would prevent otherwise inevitable cuts to social services programs."

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