California Governor Arnold Schwarzenegger shouldn’t expect the federal help he’s seeking to erase a $20 billion deficit the most-populous U.S. state faces, fiscal analyst Mac Taylor said.
“While the odds seem favorable for some federal relief sought by the administration, we believe that the likelihood of Washington agreeing to all of the governor’s requests is almost non-existent,” Taylor, from the non-partisan California Legislative Analyst Office, said in a report.
The $82.9 billion proposed budget would cut spending by $8.5 billion while counting on the federal government to provide another $7 billion that Schwarzenegger said California is owed for health care, education and illegal immigrants housed in its jails. The budget also siphons $1 billion from gasoline tax money meant for local governments.
California is among states hit hardest by the recession. Lawmakers have struggled to balance the budget as tax revenue fell, trailing projections during the first half of the fiscal year by 0.9 percent, Controller John Chiang said in a Jan. 7 report. The state, with the world’s eighth-largest economy, has the lowest credit rating among states and the nation’s third- highest rate of home foreclosures as of November, according to RealtyTrac. Unemployment was 12.3 percent that month, compared with the 10 percent national average.
California is the largest issuer of municipal debt, and investors have demanded higher rates on its obligations than top-rated borrowers. The added interest on 30-year securities amounts to 1.13 percentage point, or 113 basis points, according to data compiled by Bloomberg. The expenditure compared with as little as 0.19 percentage point in September 2008. The state sold $36 billion of debt in 2009.
Schwarzenegger included in his budget a list of additional program cuts if the federal government won’t pay a greater share of welfare, education and prison costs.
Taylor said California lawmakers would need to send Schwarzenegger a budget by March for some spending cuts to take effect in time. Two of the governor’s proposals, which combined would divert almost $1 billion from early childhood development and mental health programs into the state’s general fund, would need approval by voters in a special election in June.
Among spending reductions, Schwarzenegger wants to slash the pay of 200,000 government employees by 5 percent while increasing by 5 percent their out-of-pocket pension expenses. Those moves would replace the three unpaid furlough days a month that workers must take now....MORE