SACRAMENTO, Calif Jan 8 California Governor
Arnold Schwarzenegger on Friday proposes a budget to close a
roughly $20 billion budget gap, kicking off what is almost
certain to be a bitter fiscal fight.
Central to the problem are the state's weak economy, the
biggest of any U.S. state, and laws that require a two-thirds
majority to pass a budget -- a big hurdle in a legislature full
of hard-liners from both ends of the political spectrum.
Following are possible scenarios for the economy:
* MUDDLING ALONG - Overall economy remains sluggish.
Unemployment, now over 12 percent, remains in the double digits
for a couple of years, depressing the state's main source of
revenue -- personal income taxes. Consumer spending and housing
remain slow, limiting job creation. The state lacks funds for a
solid social safety net or stimulus, and federal funds fail to
fill the gap. The legislature passes a budget of cuts and
gimmicks that allow the state to maintain its credit rating at
the current low levels but ensure recurring budget shortfalls
will persist. As other parts of the country recover sooner,
people and businesses leave the state.
* CRISIS DEEPENS - Unemployment remains high and increases
as businesses and the state shed jobs. Pension liabilities
mount, requiring state bailout. Courts require more spending on
prisons, consumer spending slows to a crawl. Divided
legislature cannot pass budget, leading to further credit
downgrades and forcing the state to issue IOUs as markets
refuse to lend to it. Parts of state government and social
services slowly shut down as jobs and programs cut.
* TURNING A NEW LEAF - Surge in 2009 stock market translates
to rise in income tax receipts in 2010, easing government
strain and improving spending by consumers. Legislature makes
tough, permanent cuts rather than push problems to future
years. Credit agencies slowly raise ratings, easing state's
borrowing costs. Voters approve constitutional changes that
marginalize party hard-liners, and more consensus-oriented
legislature begins passing balanced budgets on time.
(Reporting by Peter Henderson and Jim Christie in Sacramento,
editing by Mary Milliken and Kenneth Barry)