June 8, 2009 / 7:37 PM / 10 years ago

UPDATE 2-California to eliminate funds for recent contracts

* Order comes as California’s cash dwindles

* California to “scrutinize how every penny is spent”

* State buys about $9 billion in goods, services each year (Adds comment, background, byline)

By Jim Christie

SAN FRANCISCO, June 8 (Reuters) - California Gov. Arnold Schwarzenegger, facing a state budget gap of $24.3 billion, on Monday ordered a halt to funding for state contracts on everything from pencils to office space.

His order applies to all contracts signed since March 1, excluding those for public safety, and bars new contracts. Projects funded by bonds and federal stimulus dollars are also exempt.

The state is expecting the move to generate savings of $1.35 billion, said Amanda Fulkerson, a spokeswoman for California’s State and Consumer Services Agency, which oversees the state’s contracting and purchases.

California’s state agencies and departments on average spend about $9 billion each year on goods and services. In the current fiscal year, California entered into 36,498 contracts for goods and services from a variety of companies, including law firms, fuel and computer software providers and consultants of various kinds.

The state’s revenues have plummeted during the economic recession, forcing state officials to consider drastic spending cuts, including to services and supplies, to balance the state’s books, said Fulkerson.

“We have to look across the board for savings,” she said. “The state controller has been very honest with us in talking about the state running out of cash in two weeks.”

Schwarzenegger said the state would be tightfisted in its financial crisis — and beyond.

“With today’s action, every state agency and department will scrutinize how every penny is spent on contracts to make sure the state is getting the best deal for every taxpayer dollar,” Schwarzenegger said in a statement.


Schwarzenegger, a Republican, has ruled out tax increases to help fill California’s budget shortfall, and the Democrat-led legislature is bracing to slash spending ahead of the July 1 start of the state’s next fiscal year.

Schwarzenegger also wants to restrain future state spending. His order directs state departments to submit to the Department of Finance plans to cut their future spending on contracts and purchases by at least 15 percent no later than 30 days after the state’s 2009-2010 budget becomes law.

“Regardless of the fiscal situation, they need to dial back,” said Schwarzenegger spokesman Aaron McLear. “From our standpoint, every California household and business is cutting spending as much as possible. We need to do the same in state government.”

Schwarzenegger’s order comes amid rising concern over California’s finances on Wall Street, which has given the state the lowest general obligation debt rating of any U.S. state.

“It’s a reflection of the difficulty the state is in,” said Emily Raimes, a senior at Moody’s Investors Service.

“At this point everyone is anticipating big cuts,” Raimes added. “It’s just a matter of what the legislature can agree to cut and by how much.”

Fitch Ratings last month warned it may lower California’s ‘A’ long-term general obligation debt rating, which would likely push the state’s borrowing costs up.

Fitch revised its rating outlook on California to negative from stable, noting in a statement that it has growing concerns about the state’s budget gap and its dwindling cash. Fitch also said the state’s numerous fiscal and cash-flow challenges through the coming budget year are key credit concerns.

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