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California Looks to Federal Funds

SACRAMENTO — California Gov. Arnold Schwarzenegger unveiled his initial fiscal 2011 budget proposal Friday, asking for almost $7 billion in federal funds to help close a budget hole in the $20 billion range.

The budget presumes that the state will receive $6.9 billion in additional federal support for a variety of health and social programs, and threatens to eliminate most of those programs if the money doesn’t come.

California will continue to face a tough liquidity position, finance director Ana Matosantos said at the budget presentation. Though cash will be low in March, she said the state will have the resources to pay its outstanding revenue anticipation notes that come due this May or June.

After that it will need a new Ran issue in the $10 billion range, Matosantos said.

“We’d be looking to borrow from the markets come August,” she said.

The governor also declared a budget emergency that requires lawmakers to address the current-year shortfall within 45 days, while putting other legislation on the back burner.

Treasurer Bill Lockyer issued a statement Friday urging lawmakers and the governor to take quick action to ensure California retains access to the debt markets. The state was out of the markets for a nine-month period of 2008 and 2009 as state leaders negotiated budget and liquidity solutions.

“Thousands of infrastructure projects will be threatened with delay or closure if the state ­cannot reenter the bond market soon,” Lockyer said. “To do that, we need to quickly and credibly solve this fiscal year’s budget problem.”

The Republican governor’s budget proposal includes $8.5 billion in spending cuts, according to the administration, as well as $4.5 billion in funding shifts. Most notable was the creation of a new excise tax on gasoline to substitute for the current sales tax in a way that would allow the state to discontinue financial support for public transit.

“There is simply no conceivable way to avoid more cuts and more pain,” Schwarzenegger said.

The governor said the $6.9 billion he wants from the federal government would simply redress the unfair situation that sees California taxpayers pay more in federal taxes than they receive back.

If the money doesn’t come, the budget proposal would trigger more cuts — effectively holding programs such as in-home supportive services and California’s main welfare program hostage to the federal government’s willingness to help. There would also be revenue increases, including a partial extension of a temporary income tax increase slated to expire Dec. 31.

“We’re not looking for one-time revenue, or two-time revenue,” Schwarzenegger said. “We’re looking for fairness.”

The request for federal support for state programs differs from 2009, when California unsuccessfully sought U.S. Treasury Department support for its ability to access the debt markets.

The federal government has generally declined to provide assistance to the municipal bond market, with the exception of a recently launched housing bond purchase and liquidity program.

Tom Dresslar, spokesman for Lockyer, said Thursday that a fresh appeal for access to the muni market is “not in the cards” this year. “There are no plans to ask for help from D.C. with regard to the issuance of bonds or the issuance of cash-flow borrowing notes,” he said.

The Obama administration and a large portion of the California congressional delegation “made it pretty clear that our budget problems are of our own making and we’ve got to deal with them, and that’s what we plan to do,” Dresslar added.

Schwarzenegger’s budget proposal calls for $680 million in new grant anticipation revenue vehicle borrowing.

The budget assumes $89.3 billion in general fund revenue in fiscal 2011, up 1.4% from fiscal 2010.

“For our economy, recovery is on the way,” Schwarzenegger said. “I wish I could say that about the budget, but I can’t.”

There was another sign last week the state’s revenue roller coaster has hit bottom. Late Thursday, Controller John Chiang issued his monthly cash report, reporting that December receipts were $481 million ahead of estimates, or 5.7%. Receipts are still about 0.9% below budget for the first half of fiscal 2010, according to the controller’s office.

“December receipts showed signs of improvement, but the state continues to face tremendous fiscal challenges,” Chiang said in a statement. “At best, this is the beginning of a long and gradual recovery.”

Andrew Ackerman contributed to this story.

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