SAN FRANCISCO (Reuters) - California’s general fund revenues in November were $1.3 billion, or 18.5 percent, below expectations, suggesting the government of the most populous U.S. state could run out of money as early as February, State Controller John Chiang said on Tuesday.
The government of California, the world’s eighth-largest economy, must contend with a $28 billion combined shortfall for the remainder of its current fiscal year and its next fiscal year, which runs from July.
The massive deficit reflects the strain on California’s finances from a housing slump, rising unemployment and weak consumer spending as a punishing downturn grips both the state and national economies.
“November blew away even the most pessimistic estimates, with general fund revenue down $1.3 billion,” Chiang said in a statement. “These receipts could expand our immediate cash problem by another half a billion dollars, with no recovery in sight.”
“According to projections from last month, all general and special funds will be exhausted by March 2009 when the state runs more than $1.9 billion in the red,” he added. “November actuals suggest the state could run out of money as early as February — and face an even larger cash shortfall in March.”
Tax collections in November from California’s three biggest sources of revenue — income, sales and corporate taxes — were $1 billion below estimates, and insurance taxes were $305 million below forecast, Chiang’s office said.
Its report came a day after both chambers of California’s legislature met in a rare joint session for a grim briefing from Chiang and other top state finance officials on the state’s weakening finances.
California’s ability to issue debt to fund job-creating public works is also at risk if the state budget shortfall is not closed, State Treasurer Bill Lockyer told lawmakers.
California is the biggest issuer of U.S. public debt. With its finances in disarray and credit markets in turmoil, the state in recent weeks has been unable to find institutional buyers for its public works debt so state loans for current and planned infrastructure projects may be cut off as early as next week, Lockyer said.
Last month, Lockyer scaled back by two-thirds a state Department of Water Resources revenue bond deal for more than $500 million in debt because of weak institutional demand.
“There is just no demand out there among the institutional investors we need,” said Lockyer’s spokesman Tom Dresslar.
“The market door is closed to California in our view, so we need a budget solution, and we need it fast.”
Michael Genest, director of California’s Department of Finance, told lawmakers that fast action on the current gap will better position the state to balance its next budget.
“Failure to act now would create a financial disaster,” he said, noting that without a balanced budget the state would need to suspend $2.4 billion in payments in March.
Gov. Arnold Schwarzenegger has urged lawmakers to balance the state’s books with deep spending cuts and new revenues, including cash from raising the state’s sales tax.
Reporting by Jim Christie; Editing by Neil Fullick