Schwarzenegger: Next year's deficit climbs to $15B

By JULIET WILLIAMS, The Associated Press
6:40 p.m. May 11, 2009

SACRAMENTO — Gov. Arnold Schwarzenegger on Monday said California faces a $15.4 billion budget deficit in the coming fiscal year, nearly double the previous estimate.

He warned the shortfall will grow to $21.3 billion if votes reject the five budget-related measures on the May 19 special election ballot.

The governor outlined the state's dire fiscal condition in a letter to legislative leaders, a week before voters go to the polls. He also said he would release his annual May budget revision on Thursday, after previously saying he would do so after the special election.

Schwarzenegger said in the letter that the state's economy has worsened significantly since February, when he and legislative leaders reached a compromise to close a then-$42 billion shortfall through June 2010.

"These changes in the state's economic and revenue pictures have caused a significant new budget problem to emerge," Schwarzenegger wrote.
He said it was imperative that lawmakers start working immediately to address the problem.

In March, California's nonpartisan legislative analyst projected an $8 billion deficit in the fiscal year starting July 1, but tax receipts have plunged as the recession drags on. California faces a decline in personal income for the first time since 1938.

Californians will vote May 19 on a package of budget-related measures that would create a state spending cap, extend a series of income, sales and vehicle tax increases, authorize borrowing from future lottery proceeds and transfer money from children's and mental health programs to the state's general fund.

Proposition 1C, which would allow the state to borrow against future lottery revenue, is the most important to the state's budget.

Schwarzenegger and lawmakers expect to bring in $5 billion if voters approve it, authorizing the state to sell bonds based on the future value of the lottery.

Propositions 1D and 1E would bring in roughly $900 million in the coming fiscal year by redirecting money previously approved by voters for mental health and early childhood development programs.
Polls of likely voters have shown all five measures trailing.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, who helped craft the special election package and is campaigning for it, said voters need to know the size of the problem before they go to the polls.

"The election on Tuesday is very important, but it's also now beyond the election," he said. "This is the single worst drop in revenue in state history, and that's due to the international and national economic crisis."

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