Emergency measure planned for California budget

By Jim Christie

SAN FRANCISCO (Reuters) - California Gov. Arnold Schwarzenegger said on Friday he would declare a "fiscal emergency" as he had previously signaled to force lawmakers to tackle an estimated $3.3 billion state budget shortfall for the current fiscal year.

Schwarzenegger said in a statement that the official announcement to impose a special legislative session will take place with the release next month of his budget plan for California's next fiscal year.

Declaration of a fiscal emergency would allow the Republican governor to seek authority from California's Democrat-led legislature for spending cuts in the middle of the state's current fiscal year to balance the budget and to bolster the next fiscal year.

California's budget watchdog agency recently forecast a $10 billion shortfall forming over the next 18 months as the state's housing downturn slows revenue growth.

"I have briefed each of the legislative leaders on our projected budget shortfall, and I believe that when the legislature reconvenes in January immediate action is necessary," Schwarzenegger said in his statement.

"I will continue my discussions with the leaders in the coming weeks, so that we can narrow as many differences as possible and move quickly in the special session to bring this year's budget back into balance," he added.

California's shortfall in the current fiscal year reflects lower revenues caused by the housing slump and mortgage turmoil, property tax collections that missed expectations, increased firefighting costs related to recent wildfires in Southern California, and legal challenges delaying Indian gambling compacts intended to provide the state with a share of casino revenues.

Schwarzenegger signaled that tax increases would be off the table in talks with lawmakers as a way to close the state's budget shortfall. He has opposed tax hikes in the past, in sharp contrast with Democrats in the legislature who have, meanwhile, fought his plans to restrain or cut spending.