Regional News

California Budget Squeeze Pain

SAN FRANCISCO — Local governments in California are bracing for steep cuts in state funding as lawmakers in Sacramento debate the best ways to close a $21 billion to $24 billion budget gap.

The state’s fiscal 2009-2010 general fund budget has fallen out of balance since it was passed in February because tax revenues continue to decline, social service needs continue to rise, and voters last week rejected $5.8 billion of borrowing and fund transfers assumed in the budget. The Obama administration made it tougher to balance the budget as it has thus far refused to back $5.5 billion of revenue anticipation warrants the state had planned to issue to finance deficit spending.

Over the past two weeks, Gov. Arnold Schwarzenegger has proposed a growing array of cuts that local officials say would throw their budgets into disarray. He has proposed reduced payments to counties for social services, slashing school funding by $5.3 billion, borrowing $2 billion from local property tax collections, and redirecting $750 million of local gas tax revenues to pay debt service on state ­highway bonds.

“Whenever our colleagues in Sacramento fail to solve statewide deficits, they look to balance our books on the backs of cities, counties, and school districts,” said Los Angeles Mayor Antonio Villaraigosa in a press conference during a trip to Sacramento to lobby against the cuts this week. “The result — drastic cuts to vital services — is simply unacceptable.”

The governor’s proposals would result in
'drastic' and "unacceptable' cuts to service,
says Los Angeles Mayor Antonio Villaraigosa.
California’s biggest city is working to close an estimated $530 million budget gap of its own for the upcoming budget year. Villaraigosa and the City Council plan to close about half of the gap with program cuts, and the mayor is negotiating with public employee unions on compensation cuts that would fill the rest of the hole.

Villaraigosa, a former speaker of the state Assembly, said that has left his city in no position to help balance the state’s budget this year. The governor’s proposal to borrow local property taxes would cost Los Angeles about $68 million next year. The city doesn’t have the money and would have to borrow it, a spokesman for Villaraigosa said in an interview.

Under Proposition 1A — passed in 2004 to protect local governments from state raids on their revenues — California is legally allowed to borrow up to 8% of local property tax revenues if the governor declares a “severe fiscal hardship” and two-thirds of the Legislature approves the plan. But the state must repay the funds within three years with interest.

H.D. Palmer, spokesman for the Department of Finance, said the governor proposed borrowing from local governments as a last resort, noting that Schwarzenegger led the campaign for Proposition 1A.

“The easy solutions are over,” Palmer said. “The scope and the severity of this recession and the resulting dramatic drop in revenues over a short period of time have forced the governor to put options on the table that we wouldn’t have considered even three months ago.”

Cities, counties and school districts are organizing to oppose what they consider raids on their revenues.

“We’re not in a position right now in counties to float the state a loan,” said Paul McIntosh, executive director of the California State Association of Counties, in an interview.

“Cities are already reducing services due to the recession and can’t afford to cut public safety and other essential services to bail the state out,” said Judith Mitchell, the mayor of Rolling Hills Estates, Calif., and the president of the League of California Cities, in a news release.

In addition to mobilizing local officials to lobby state lawmakers, the league has set up a Web site, www.saveyourcity.net, where local officials post videos explaining the impact of the state’s borrowing plan on local services.

“The state borrowing of city funds is going to be devastating for us,” said Ben Hueso, president of the City Council in San Diego, the state’s second-biggest city, in a typical video posted on the site. “We’re going to have to close libraries, community centers, and a whole host of other services that we desperately need.”

San Diego is cutting $80 million of spending to balance its budget next year, and the state’s borrowing plan could cost another $35 million.

Schwarzenegger has revised his budget plan multiple times in recent weeks. One set of revisions aimed to offset declining revenues, which are on track to fall $12.5 billion from the levels predicted in February, and rising expenses, which would add another $3.1 billion to spending if the state took no action. A second set of revisions sought to plug the $5.8 billion hole created by voters in the special election.

This week, the Department of Finance outlined another $5.5 billion of fixes to fill the hole left by the state’s inability to sell revenue anticipation warrants, and the department is working on another round of fixes because the Legislative Analyst’s Office said the administration’s revenue estimates were too optimistic by about $3 billion.

Schwarzenegger this week proposed budget cuts to close the $5.5 billion gap created when he last week abandoned plans for a RAW offering. The state still plans to do short-term borrowing in the form of up to $10 billion of revenue anticipation notes.

The governor proposed eliminating CalWorks, the state’s welfare program, general fund spending for state parks and the Healthy Families Program, California’s version of the State Children’s Health Insurance Program. It provides health insurance to uninsured children who don’t qualify for Medicaid.

The governor would also phase out the state’s main college financial aid program, drastically reduce spending for prisoner rehabilitation, and commute the prison sentences of many nonviolent offenders.

The latest round of cuts hit counties and school districts particularly hard because they rely heavily on state funding.

Counties would lose money from the property tax borrowing plan and the gas-tax intercept, and would be on the hook for more than $1 billion if the state eliminates the CalWorks program, McIntosh said. Counties are legally required to provide general assistance to poor people who don’t get welfare, which means they would face a surge in case loads if CalWorks were eliminated.

Schwarzenegger has proposed a $5.3 billion reduction in school spending this year and next. The proposed cuts for fiscal 2009-2010 equal 9.2% of the $40.3 billion of school funding approved under the budget passed in February.

Paula S.
“We have six weeks left in the school year and our governor is proposing that schools find a way to cut up to $1.4 billion before then,” said Paula S. Campbell, a member of the Nevada City School District Board of Education and president of the California School Boards Association, in a release. “This is an unfathomable request given the magnitude of cuts already made in the last several years.”

The governor’s proposals have provoked opposition from Democrats, who control the Legislature and would like to consider raising taxes to close part of the budget gap.

“California is standing at the edge of a fiscal cliff with a gun pointed to its head,” said Assembly Member Noreen Evans, D-Santa Rosa, who chairs the Legislature’s Budget Conference Committee, at a hearing Tuesday. “We are going to be considering pretty severe and horrible cuts.”

But there are limits to how much the state can cut the social safety net during a deep recession, Evans said. “The governor has made it clear that he would rather throw women and children out of the lifeboat before raising taxes,” she said.

Schwarzenegger, a Republican, says voters have made it clear that they don’t want more taxes, and Democrats don’t have the two-thirds majority necessary to pass tax hikes.

Palmer said: “There is not an appetite in California for additional tax increases. That was the message the people of California sent fairly clearly at the special election. Based on that, the governor is going forward with a number of very difficult proposals to close this growing budget gap, predominantly on the spending side of the equation.”

State Controller John Chiang last week told lawmakers they have until the end of the month to come up with a plan to avert a severe cash crunch in June. He said the state will have more bills coming due than cash coming in by the third week of the new fiscal year.



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