Regional News

Schwarzenegger Signs $103.4B Budget

SAN FRANCISCO - California Gov. Arnold Schwarzenegger put an end to the longest-running budget deadlock in the state's history yesterday, signing its $103.4 billion budget more than 12 weeks after fiscal 2009 began.

The budget gridlock, created by the requirement of two-thirds majority approval in each house that gave minority Republicans veto power, finally broke after Democrats conceded to GOP demands that there be no tax increases to close the $15 billion general fund deficit that existed going into the budget process.

The final document used several one-time fixes to declare the budget balanced.

Along with the budget come the so-called trailer bills, which make statutory changes required to adopt the budget, and enact the political tradeoffs made to get sufficient votes to pass the budget.

One of those bills authorizes $509 million in new lease- revenue bonds, including $376 million to expedite projects at University of California and California State University campuses, "consistent with an economic stimulus approach," according to an analysis by legislative staff.

The bill also authorizes $136 million to build a new complex for death-sentence prisoners at the San Quentin Prison.

While lawmakers approved one prison bond proposal, they were unable once again to pass another bill, authorizing $8 billion in lease-revenue bonds to finance prison health care facilities demanded by the federal receiver who controls the state prison health system.

The receiver, Clark Kelso, is operating under broad authority granted by a federal judge who ruled that the state had failed to live up to a settlement agreement in a lawsuit alleging the correctional health system is so inadequate it constitutes cruel and unusual punishment.

Kelso has filed a motion simply demanding the money, starting with $3 billion in the current fiscal year.

It's a reminder of how precariously the budget is balanced.

The governor's Department of Finance is projecting that the state faces a $1 billion structural deficit for fiscal 2010 - and that is assuming that the state is able to issue $5 billion of bonds securitizing future revenues from the state lottery.

The lottery bonds were part of the final budget compromise. But they cannot be issued unless voters approve changes to the state lottery, which will require a special election sometime in 2009. At the same time, voters will be asked to approve budget reforms, including a new rainy day fund with a lockbox provision designed to keep lawmakers from accessing it unless there is a revenue shortfall.

Schwarzenegger demanded the budget reforms as his condition for signing the budget, which he did yesterday after making $510 million in line-item vetoes, bringing the general fund spending plan to $103.4 billion, according to spokesman H.D. Palmer.

With the budget signed into law, the state will begin making billions of dollars in payments that it lacked the authority to make without a budget. State Controller John Chiang announced that he was working to issue those payments speedily, with an emphasis on non-profit organizations paid to provide services to the sick, elderly, and disabled.

The budget's enactment also means that the treasurer's office will turn its attention to a sale of revenue anticipation notes to manage the state's cash flow - at a time when the markets are roiled with turmoil, as indicated by the decisions of issuers like New Mexico and the Fairfax County, Va., Redevelopment and Housing Authority to pull note sales off the calendar this week.

As of yesterday, the treasurer's office was still working to determine the size, structure, and timing of a Ran transaction, spokesman Tom Dresslar said. A state Ran sale is expected to be approximately $10 billion, far larger than any of the deals postponed in the most recent market turmoil.

"At this point we have no reason believe the state would not have under this budget, as bad as it is, the wherewithal to retire Rans within the fiscal year," he said.



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