Budget stalemate goes from bad to worse 

Analysis from CSBA’s Governmental Relations Department

The new legislative session had just gotten under way Dec. 1 when Gov. Arnold Schwarzenegger reminded legislators of the daunting task they face in the days and weeks ahead by calling two special sessions. The governor called the first session to address the state’s budget deficit pursuant to Proposition 58, which voters passed in 2004 to provide a mechanism for swift action during such times. The second session addresses economic stimulus, the mortgage crisis and the impending insolvency of the state’s Unemployment Insurance fund.

The budget deficit for the remainder of 2008-09 and 2009-10 is currently projected at $28 billion; however, it is expected that when the governor announces his spending plan for 2009-10 on Jan. 10, the gap will have grown even larger as the economy continues to decline.

Under the requirements of Proposition 58, Gov. Schwarzenegger must provide the Legislature with a plan to balance the budget. He is expected to rely on the solutions he proposed when he called the special session in November—including greater cuts and new revenues. The Legislature then has 45 days to adopt the governor’s plan or provide an alternative. If lawmakers do not act in the allotted time, they cannot adjourn or proceed with any other business.

The plan includes reducing spending by $4.5 billion—including a $2.5 billion cut to K-14 education, increasing revenues by $4.7 billion and reducing the state’s reserve for economic uncertainty by $1.7 billion. The Administration believes the Legislature’s failure to act in the lame duck session last month reduced the solutions the governor proposed by at least $1 billion.

On Monday, the Senate and Assembly met in a rare joint convention on the Assembly Floor to get an up-to-the-minute look at the state’s fiscal condition from Treasurer Bill Lockyer, Controller John Chiang, Legislative Analyst Mac Taylor and Director of Finance Mike Genest. Each provided his own analysis of the dire situation the state is in and urged quick action.

Should the Legislature not act quickly to adopt solutions that include revenues, the treasurer warned that state road and school construction projects would be halted within a matter of days. The controller, whose office manages the state’s cash, cautioned legislators that they still face cash flow problems and that the state would be out of cash by March and would not be able to make payments.

Clearly, urgent action is needed, and with each passing day, the ability to realize solutions—both in further cuts and increased revenues—diminishes greatly. The biggest hurdle to swift action remains garnering the three Republican votes needed in each house to reach the two-thirds majority vote threshold to enact a budget that includes increased revenues.

Republican leadership acknowledges the dire warnings but has yet to change their belief that revenues are not fundamental to solving this crisis. While they have offered up their plans for an economic stimulus package—including employment and regulatory changes, changes to environmental requirements and tax credits—they have not provided a proposal for closing the budget gap without the infusion of new revenues.

The Senate will begin holding budget subcommittee hearings today and may vote on some unknown package before breaking for the holidays. Plans on the Assembly side are unclear at this point.

Send Your Holiday Wish List to Your Legislators

It is possible that legislators will vote on a revised spending plan by Dec. 22; therefore, please take a moment to contact your senator and assembly member now, and let them know that they must not consider any package that doesn’t include increased revenues. Information, including talking points, a sample letter and sample board resolution, is available at:

http://www.csba.org/EducationIssues/EducationIssues/SchoolsInvestment.aspx