13:27 EDT 05/20
California Watch: Voters Render Verdict – Bring On Layoffs>
–Voters Defeat Budget Recommendations, Leave $21.3 Bln Deficit
–Governor Seeking Federal Guarantee to Sell $6 Bln in Bonds by July
By Chris H. Sieroty
LOS ANGELES (MNI) – California voters, by defeating a series of ballot measures that Gov. Arnold Schwarzenegger and lawmakers had placed on the ballot as a way to narrow the state’s latest budget deficit, have set the stage for unpaid state bills as soon as July.
Just one of the six measures passed in a special election held Tuesday.
Proposition 1F — that bans salary increases for Sacramento lawmakers in years the state runs a budget deficit — was overwhelmingly approved by voters.
Proposition 1A would have imposed new restrictions on state spending while temporarily extending a series of tax increases approved by lawmakers in February to close a nearly $42 billion shortfall through June 2010.
A companion measure, Proposition 1B, would have given educators $9.3 billion they claimed was due under Proposition 98, the 1988 initiative that set minimum spending levels for schools and community colleges.
Three other measures — Propositions 1C, 1D and 1E — had promised to raise more than $6 billion this summer to help close the state’s budget deficit. For example, Proposition 1C would have allowed the state to borrow $5 billion against future increases in California Lottery revenues.
After the polls closed, Gov. Arnold Schwarzenegger said: “Tonight we have heard from the voters and I respect the will of the people who are frustrated with the dysfunction in our budget system. Now we must move forward from this point to begin to address our fiscal crisis with constructive solutions.”
Moving forward means increased cuts to state programs to balance the budget. The governor has called for an increase of $2.3 billion in budget cuts for education on top of $3 billion in cuts that were already planned. He has also called for a $400 million cut in prison costs by shifting inmates to local and federal authorities.
He has also announced plans to layoff 5,000 of the state’s 235,000 workers, selling off state properties and possibly reducing eligibility for healthcare programs.
Anti-tax opponents described the special election as voters sending a clear message that lawmakers had failed to solve the state’s budget problems. “With this election, the people of California have sent a clear message to Sacramento,” said state Sen. Dennis Hollingsworth, R-Murrieta. “They know that their government has failed them. They have lost confidence in government to fix the budget or the problems they face every day.”
California faced a shortfall of $15.4 billion for its next fiscal year even if the measures were approved. Without voter approval, the state now faces a $21.3 billion deficit, according to the governor.
The budget recommendations were designed by the governor and lawmakers as a way to balance the state’s books through mid-2010. With the special election over, the state now faces a cash crunch that could render officials unable to pay bills come July.
Schwarzenegger and lawmakers are meeting late Wednesday to discuss new proposals to keep California solvent.
Both the state Senate and Assembly are expected to hold public hearings Thursday to debate budget details. State Treasurer Bill Lockyer and Controller John Chaing are expected to appear before legislators Friday to warn them about the seriousness of the impending cash crisis.
Both Democrats and Republicans are to introduce separate proposals to deal with the state’s budget shortfall. “Senate Republicans have heard the voter’s message and are committed to overhauling and reforming that system to make it work for them again,” said Hollingsworth, the GOP Senate leader.
“We will be unveiling solutions to end the cycle of permanent budget crises, make government work efficiently, help create new jobs, and change the self-serving culture in Sacramento,” he said.
But as lawmakers debate how to close the state’s budget deficit, the state’s plan to sell $6 billion in revenue anticipation notes in July could be threatened by its worst-in-the-nation credit rating and concerns on Wall Street about a lack of tax revenues for debt service.
The governor, who was in Washington D.C. Tuesday, met with the state’s congressional delegation to gain their support for federal guarantees to ease investor’s concerns. Last week Lockyer urged U.S. Treasury Secretary Timothy Geithner to extend debt guarantees through the $700 billion Troubled Asset Relief Program to states and local governments to help them borrow short-term funds.
** Market News International Los Angeles **