California budget woes growing amid slowdown

By Adam Tanner

SAN FRANCISCO (Reuters) - A slowing economy and lower property tax revenues are likely to lead to a $1.9 billion state deficit in California's current fiscal year and a shortfall of $8 billion next year, the state Legislative Analyst's Office said on Wednesday.

"To balance the 2008-09 budget, the state will have to adopt nearly $10 billion in solutions," the office said in a report.

The report, made to the legislature in the nation's most populous state, said the current fiscal year budget situation had worsened by $6 billion since its passage in August, wiping out a hoped-for $4.1 billion reserve and leaving a $1.9 billion deficit.

In addition to economic softness and lower property taxes amid turmoil in the real estate market, the report forecast delayed revenue from Indian casino compacts and negative factors related to education expense requirements.

State Treasurer Bill Lockyer, a Democrat, concurred with the downbeat assessment.

"These numbers are bad news, but the story they tell is not new," he said in a statement. "California's fiscal house is in disrepair, and the question is when policy-makers will get serious about fixing it. That work has got to start now."

The outlook for California's financial situation in the next two years was also tough, with a projected $8 billion in shortfalls in both the 2008-09 and 2009-10 fiscal years, according to the report.

"Knowing the challenges that we face, throughout the fall, my administration has been examining a variety of options to close next year's budget gap," Gov. Arnold Schwarzenegger said in a statement. " I have not made any final decisions yet, but it's clear that the decisions that will be involved will be tough."