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By Jim Christie
SAN FRANCISCO, July 28 California Governor
Arnold Schwarzenegger declared a state of emergency over the
state's finances on Wednesday, raising pressure on lawmakers to
negotiate a state budget that is more than a month overdue and
will need to close a $19 billion shortfall.
The deficit is 22 percent of the $85 billion general fund
budget the governor signed last July for the fiscal year that
ended in June, highlighting how the steep drop in California's
revenue due to recession, the housing slump, financial market
turmoil and high unemployment have slashed its all-important
personal income tax collection.
In the declaration, Schwarzenegger ordered three days off
without pay per month beginning in August for tens of thousands
of state employees to preserve the state's cash to pay its
debt, and for essential services.
California's budget is five weeks overdue, joining New York
among big states with spending plans yet to be approved, and
Schwarzenegger and top lawmakers are at an impasse over how to
balance the state's books.
Analysts say it could be several more weeks before the
Republican governor and leaders of the Democrat-led legislature
reach an agreement, a delay that threatens to lower the state's
already weak credit rating, now hovering just a few notches
above "junk" status.
"Without a budget in place that addresses our $19 billion
budget deficit, every day of delay brings California closer to
a fiscal meltdown," Schwarzenegger said in a statement.
"Our cash situation leaves me no choice but to once again
furlough state workers until the legislature produces a budget
I can sign," he wrote.
Schwarzenegger's declaration noted the state's government
is projected to run out of cash no later than October should
its budget stalemate persist, as expected.
California has a long history of nasty and lengthy budget
Last year, the fight over a spending plan dragged on so
long the state controller had to issue IOUs instead of payments
to vendors to conserve money for priority payments, including
payments for education programs and for investors holding the
IOUs AS EARLY AS NEXT MONTH
Schwarzenegger's declaration noted State Controller John
Chiang has said he could be forced to issue IOUs as early as
next month because of the budget impasse.
Schwarzenegger has proposed slashing spending to balance
the state's books, an approach rejected by Democratic
lawmakers. Their leaders in the state Senate and Assembly are
trying to draft a joint plan likely to include proposals for
tax increases to rival the governor's budget plan.
By ordering furloughs, which he also did last year,
Schwarzenegger is bringing pressure on state employee unions
allied with Democratic lawmakers on the heels of losing a
courtroom battle to cut state employees' pay to the federal
minimum wage to bolster the state's finances.
Schwarzenegger's new furlough order was instantly condemned
by labor officials as a political ploy.
"To once again force state employees to take unpaid
furloughs is just another punitive measure by Governor
Schwarzenegger because he couldn't impose minimum wage," said
Patty Velez, president of the California Association of
The declaration exempted state employee bargaining units
that recently agreed with Schwarzenegger's administration to
new contracts that include reduced pension benefits.
Schwarzenegger has said he will only sign a budget
agreement if it includes an overhaul of the state's public
pension system, which includes the California Public Employees'
Retirement System, the biggest U.S. public pension fund, which
he says poses one of California's greatest financial challenges
Schwarzenegger clearly has no qualms in the final months of
his final term about pressuring lawmakers through the wallets
of one their top constituencies, said Pete Peterson, executive
director at the Davenport Institute at Pepperdine University's
School of Public Policy.
"It's an indirect play," he said. " ... these past few
months there has been a much more confrontational relationship
between the governor and the unions."
(Editing by Todd Eastham)