Part of Governor’s Budget Plan Lawmakers Should Enact Soon

In the wake of a projected $25.4 billion budget shortfall if lawmakers do nothing between now and June 30, 2012, Gov. Arnold Schwarzenegger – for the last time – declared a fiscal emergency December 6 and called the Legislature into a special session to deal with the problem.

Schwarzenegger proposed $9.9 billion in actions — $7 billion of them spending cuts — to eliminate the current year’s projected deficit of $6 billion, and whittle down the expected shortfall for the new fiscal year that begins July 1.

“Any governor would call for a special session now,” Schwarzenegger told reporters. “Every month of inaction the state will spend hundreds of millions of dollars more than it takes in.”

This is the eighth special session on the budget Schwarzenegger has called in seven years as governor.

Democrats, who hold comfortable majorities in both the Assembly and the Senate, told the GOP governor to pound sand. They said that they would return in January and deal with Governor-elect Jerry Brown.

“Transforming California thoughtfully and responsibly will take longer than the 28 days Governor Schwarzenegger has left in office.  Hasty action now could have devastating impacts on our economy,” said Bob Blumenfield, a Van Nuys Democrat who chairs the lower house’s budget committee.

“That is why I prefer to develop long-term budget solutions with the governor tasked with administering these enormous changes to our state – Jerry Brown.”

Although the bulk of the GOP governor’s spending cuts have been pitched by him previously – and rejected by Democrats – one proposal is new, spawned by voter approval of Proposition 22 on November’s ballot.

Prior to the initiative passage, the state was suing a portion of excise taxes collected on gasoline to pay debt service on transportation bonds.

Proposition 22, backed by the League of California Cities and redevelopment agencies, prohibits the state from “borrowing” local transportations funds or redevelopment agency money to pay down the state’s budget shortages.

The ballot measure also sharply restricts the ability of the state to use fuel tax revenue to pay debt service on transportation bonds.

“Under the measure, the state could not use fuel tax revenues to pay for any bonds that have already been issued. In addition, the state’s authority to use fuel tax revenues to pay for bonds that have not yet been issued would be significantly restricted,” the Legislative Analyst wrote in describing Proposition 22.

“Because of these restrictions, the state would need to pay about $1 billion of annual bond costs from its General Fund rather than from transportation accounts.”

Sharing the Legiasltive Analyst’s view, State Controller John Chiang stopped using fuel taxes to pay transportation bond debt in October.

As result of Proposition 22’s passage, Schwarzenegger proposes using weight fees to pay the debt service on the bonds, saving the cash-strapped general fund $850 million this year and $727 million the following year.

Weight fees are assessed on larger trucks to compensate for the wear-and-tear they cause state highways. The bigger the rig, the higher the fee.

Roughly $1 billion in the fees are collected each year and deposited in the State Highway Account.

“We’re going to the same destination, just by a different route,” said H.D. Palmer, a spokesman for Schwarzenegger’s Department of Finance.

“If the Legislature acted on this, it would eliminate a great deal of fiscal and legal uncertainty.”

The Assembly is not scheduled to return to the Capitol until January.


Filed under: Budget and Economy

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