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UPDATED: State of the state: $42B deficit crisis

Smyth calls for reforms, Runner for spending limits

Posted: January 15, 2009 12:46 p.m.
Updated: January 15, 2009 12:53 p.m.
 

SACRAMENTO (AP) - Gov. Arnold Schwarzenegger on Thursday called California's massive deficit a "rock upon our chest" and said the state can address no other policy issues until the fiscal crisis is resolved.

The Republican governor delivered his sixth State of the State address amid a grim political backdrop.

California's budget deficit is expected to soar past $40 billion over the next year-and-a-half, the financial and construction industries have been decimated by the housing collapse and unemployment is on the rise.

As a result, revenue from property, sales and capital gains taxes has plunged, leading California to the brink of fiscal calamity.

"The truth is that California is in a state of emergency. Addressing this emergency is the first and greatest thing we must do for the people," he said during a relatively brief address to a joint session of the Legislature. "The $42 billion deficit is a rock upon our chest and we cannot breathe until we get it off."

Schwarzenegger warned that California, the world's eighth largest economy, faces insolvency within weeks if lawmakers fail to close the widening deficit.

State finance officials said California will run out of cash in February. If that happens, it will have to send IOUs to state contractors and taxpayers expecting refunds.

"Families and businesses across California today are tightening their belts to make ends meet," said Assemblyman Cameron Smyth, R-Santa Clarita. "Californians should expect nothing different from their Legislature. Republicans are prepared to do our part and make the same sacrifices being asked of hard-working Californians."

Smyth said he would work with his colleagues to try and pass common-sense reforms proposed by Republicans to promote more job creation in our state, give schools more freedom and flexibility to invest in the classroom, ensure our tax dollars are spent as wisely and efficiently as possible and fix our broken budget system to help the state live within its means.

"We must implement long-term meaningful reforms to help California operate more efficiently and effectively," Smyth said.

He called for a constitutional spending limit and a strong "rainy day" fund.

These structural reforms, along with an economic recovery plan that encourages investment and promotes job creation, are key components of any workable budget solution."

Schwarzenegger said the state's financial problems are so pressing that no other issue - including education, water policy or health care - can be addressed until the state's budget problems are resolved.

"Let me tell you, I have big plans for this state. They include action on the economy, on water, environment, education, and health care reform, government efficiency and reform, job creation, and the list goes on and on," Schwarzenegger said. "But our first order of business is to solve the budget crisis."

State Sen. George Runner, R-Antelope Valley, called for a spending limit on taxes and streamlining to provide the most basic needs.

"California can beg, steal or borrow $40 billion today, but if we continue to spend with abandon we will be $20 billion in the hole tomorrow," said Runner, who represents part of Santa Clarita Valley.

Schwarzenegger's address was unusual for its brevity, its lack of big ideas and even the time slot.

Governors typically use their annual address to the Legislature to lay out their major policy goals for the coming legislative session. In years past, Schwarzenegger has promoted bold initiatives that included a failed $14 billion overhaul of the health care market and a successful pitch for billions of dollars in infrastructure bonds.

The speech is typically given to the Legislature in early evening and is sometimes carried live on local television stations.

This year's event was a spartan affair, with the speech starting at a little past 10 a.m. and concluding in about 12 minutes.

The lack of fanfare illustrated the austerity of the times.

Closing California's deficit will include billions in spending cuts. Schwarzenegger has ordered state workers to take two days off a month without pay, starting in February, while departments have been asked to take 10 percent, across-the-board cuts.

Public works projects have ground to a halt because the state no longer has the money to pay for them, and teachers in some school districts have received layoff warnings as the state has run low on cash.

While Schwarzenegger spoke, dozens of disabled people and their supporters lined the sidewalk outside the Capitol, chanting "no more cuts, shame on you" to protest the governor's proposal to cut health care and human services programs.

"Our view is, we've given," said Marty Omoto of the California Disability Community Action Network, which organized the rally.

The chanting could be heard inside the Assembly chamber, where lawmakers, constitutional officers and first lady Maria Shriver had gathered to hear the governor's speech. Among those on hand was former Gov. Gray Davis, the Democrat ousted from office in the 2003 recall election that brought Schwarzenegger to power.

After the speech, Davis said Schwarzenegger was not solely to blame for the Capitol gridlock and expressed doubt the Legislature could solve the state's structural budget problems. He said long-term fixes such as establishing a rainy day reserve would require a ballot initiative.

Still, Davis said he is hopeful the Legislature will be able to pass a budget that addresses the short-term crisis.

"Shame is a powerful motivator, and I do not believe the state wants to issue IOUs for people looking for their tax returns," he said.

The sticking point in budget negotiations has been raising taxes. Schwarzenegger and Democrats have proposed raising a variety of taxes, but have not agreed on the form those should take.

The governor's latest budget plan proposes $17.4 billion in spending cuts, $14.3 billion in tax increases and $10 billion in borrowing to close the deficit through June 2010. He said all sides have to be willing to give up something so they can reach a compromise.

Republicans have refused any tax increase but have yet to show how they would cut $42 billion over the next two fiscal years to balance the budget.

Assembly Minority Leader Mike Villines, R-Clovis, stopped short of saying Republicans were willing to consider tax increases. But he said he believes Californians understand the gravity of the financial crisis and would be willing to pay more if they saw the Legislature make deep cuts, genuine reforms and eliminate waste. He said the crisis presents a historic opportunity for Republicans, the minority party in both houses, to help shape California's future.

"We have a chance right now to do something that is significant, that is something that Republicans don't often get to be at the table for," Villines said. "You have to take an opportunity like this and really work hard to see if you can't solve the problem."

On Thursday, Schwarzenegger said lawmakers were engaged in "serious and good faith negotiations" but also criticized them. He said they were more devoted to party ideology than working for the people who elected them.

In the future, he said, lawmakers and the governor should not receive their salaries or per diem payments - daily expense money - for each day they miss the constitutional June 15 deadline for producing a budget. Schwarzenegger, who is personally wealthy, does not take a salary from the state.

"If the people's work is not getting done, I think the people's representatives should not get paid either. That is common sense in the real world," he said.

California's lawmakers are the nation's highest-paid, making $116,208 in base annual salary. On top of that, they get $173 for daily expenses, collecting an additional $34,680 on average per year.

Senate Minority Leader Dave Cogdill, R-Fresno, criticized the governor's suggestion that the Legislature forgo pay and per diems when the budget is delayed. He said legislators already have their pay suspended during a stalemate, which is fair.

"It just seems to me inappropriate to add a penalty just because it isn't out on time," Cogdill said. "Is that what the people of this state want? A budget that's out on time regardless of its quality? I doubt that."

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