California gov. says no special budget session yet

SACRAMENTO, California (Reuters) - California Gov. Arnold Schwarzenegger said on Wednesday he has no immediate plans to call a special legislative session for lawmakers to tackle the state's latest budget shortfall.

Instead, Schwarzenegger emerged from a meeting with top lawmakers and said they would meet again next week to track and discuss how to fill the shortfall, which has reemerged on the heels of the celebrity governor signing a budget for the current fiscal on September 23 following a record 85-day impasse during which lawmakers could not agree on a spending plan.

The budget they eventually approved closed a $15.2 billion deficit but state Controller John Chiang said on Tuesday that California's revenues are weaker than expected and were $1.1 billion below forecast at the end of the first quarter of the current fiscal year.

"Revenues are deteriorating faster than expected, and September's cash flows send strong signals that the recently enacted budget is more out of balance than we feared," Chiang said.

"With unemployment on the rise and capital gains diminishing, there is little reason to believe personal income taxes will recover," Chiang said, adding that the outlook for revenue from sales taxes also is bleak.

Schwarzenegger told reporters after meeting with legislative leaders that they also discussed the state's plan to sell revenue anticipation notes to raise cash for its short-term expenses.

"We are all as a team, Democrats and Republicans, coming together as a team regularly and always talking about those challenges that we face," Schwarzenegger, a Republican, said.

He said State Treasurer Bill Lockyer had briefed the meeting on his plan for a note sale. Earlier on Wednesday, Lockyer's office said California would sell $4 billion of the notes next week, aiming a large share at retail investors, and will sell up to another $3 billion later if the municipal debt market allows.

The market has been frozen in recent weeks, raising concerns in the state capital of Sacramento that California, the biggest U.S. issuer of municipal debt, may not be able to hold a conventional note sale.

Facing that possibility, Lockyer, a Democrat, and Schwarzenegger partnered on a plan to approach the U.S. government to potentially buy the notes.

Schwarzenegger in a letter on Thursday told U.S. Treasury Secretary Henry Paulson that California could need the federal government to buy the notes because of the weak credit market. A response may come soon, White House economic adviser Edward Lazear said in Washington on Tuesday.

Other plans under consideration in Lockyer's office to raise cash for California's short-term needs include potential bank loans and tapping, if possible, a Federal Reserve program for buying U.S. commercial paper to bolster liquidity in the short-term market.

"Hopefully the credit market will loosen up," Assembly Speaker Karen Bass told reporters after meeting with Schwarzenegger and Lockyer's briefing. "We do believe that it will."

"It's most important that we be calm and thoughtful and that we not feed into the panic that we're seeing in other places but I will tell you though that many other states are going through the same thing we are going through," Bass added.

(Reporting by Jenny O'Mara in Sacramento, California; Writing by Jim Christie; Editing by Gary Hill)