(Repeats to widen distribution)
By Jim Christie
SAN FRANCISCO May 20 Hard-hit California faces
new, deep cuts in education and thousands of state layoffs
after voters soundly defeated ballot measures to bolster the
state's finances, leaving Gov. Arnold Schwarzenegger and
lawmakers with a budget gap of more than $21 billion.
Already struggling with double-digit unemployment and a
housing crisis, Schwarzenegger had promised cuts and new
short-term borrowing if the measures failed, although prospects
for going forward with the debt are unclear.
More than 60 percent of voters rejected five fiscal
measures on the ballot in Tuesday's special election. A sixth
measure barring pay raises for state officials amid deficits
was approved by about 74 percent of voters.
Voters used Tuesday's election to rebuke the governor and
lawmakers, whose job approval ratings are at record lows,
according to the latest Field Poll. "They were sending a
message of anger," said Field Poll director Mark DiCamillo.
Surveys in recent weeks had found little support for the
fiscal measures, and Schwarzenegger all but conceded defeat by
joining President Barack Obama in Washington on Tuesday for his
announcement on auto emission rules instead of campaigning for
the measures through election day.
"Now we must move forward from this point to begin to
address our fiscal crisis with constructive solutions,"
Schwarzenegger said in a statement.
State Senate President Pro Tem Darrell Steinberg said
lawmakers will need to craft a lean budget as soon as possible.
"The voters have spoken and they are telling us that government
should do the best it can with the money it has," he said.
Dire warnings of fiscal calamity by Schwarzenegger and
echoed by top lawmakers failed to sway voters, who said they
disliked the specifics in the measures -- including a spending
cap, extending tax increases, borrowing against lottery
revenues and tapping dedicated funds.
Outside a polling place in Oakland, California on Tuesday,
John Brockage said he had lost faith in the state's leaders and
could not back the fiscal measures. "We have a dope for a
governor and the legislature is completely incompetent," he
said. "I voted 'no' on all of them."
DEEP SPENDING CUTS CERTAIN
Voters left unanswered how Schwarzenegger and lawmakers
should address the state's weakening finances.
Last week Schwarzenegger said the government of the most
populous state in the United States faced a shortfall of $15.4
billion for its next fiscal year even if the fiscal measures
were approved -- underscoring the severe downturn in state
revenue amid recession and double-digit unemployment.
Without voter approval for the measures, California would
face a $21.3 billion deficit, according to Schwarzenegger, who
with the state's Democrat-led legislature put the measures to
voters as part of a February budget compromise to close a
nearly $42 billion shortfall through June 2010.
Tuesday's election results will likely be seen by state
officials as a rejection of tax increases to close the budget
gap, and they may resort to deep spending cuts, which voters
may regret, analysts said.
"The public is under the delusion that they can have
everything -- potholes filled, new freeways, a good education
system -- but they aren't willing to pay for it ... A lot of
critical services are going to be cut and there will be serious
consequences," said Jim Hawley of the Elfenworks Center for the
Study of Fiduciary Capitalism at St. Mary's College of
Schwarzenegger last week said 5,000 layoff notices would be
sent to state employees, and spending cuts could fall hard on
education. That stunned teachers whose school districts are
already under financial pressure as their revenue shrinks.
"I'm actually a little bit nervous," said Ashley Hodge, 25,
a teacher from Sonora, California. "We need supplies ... and
the school is getting ready to do a second round of layoffs."
Schwarzenegger also said California would sell a $6 billion
revenue anticipation warrant to raise cash. But that may be
difficult because such "short-term debt has to be paid back
before the state is out of the woods," said Paul Rosenstiel of
investment bank De La Rosa & Co.
Washington could backstop that debt to ease investors'
concerns about California's finances, according to State
Treasurer Bill Lockyer. Last week he 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.
California is in such a bind it may also need a cash rescue
by Washington, said Daniel Mitchell of the University of
California Los Angeles's School of Public Affairs: "If we got
what they've already thrown at the auto industry, that would
solve our problems for the next year or two."
(Reporting by Jim Christie; Additional reporting by Ciara
Linnane in New York and Braden Reddall in Sacramento,
California, Editing by Chizu Nomiyama)