SAN FRANCISCO - California legislative analyst Mac Taylor said Gov. Arnold Schwarzenegger's 2009-2010 budget shows that the state's fiscal options are narrowing, and he called the governor's deficit borrowing plans "risky."
Taylor, who took over as head of the nonpartisan Legislative Analyst's Office last year, said the budget gap has grown by $12 billion since Schwarzenegger proposed a package of budget cuts and tax hikes in November. The deficit now stands at about $40 billion.
"The time available to achieve current-year savings has shrunk," Taylor said in a report. "And cash problems have worsened to the point that the state may not be able to pay all its bills beginning next month."
Taylor's report is just the most recent dire warning from the state's top fiscal officers. Controller John Chiang has repeatedly told lawmakers to close the budget deficit or risk running out of money to pay bills by next month. Treasurer Bill Lockyer has said the state's lack of credible budget solutions means he can't tap the municipal bond market for needed borrowing.
Yet California lawmakers have yet to reach a consensus on how to solve the budget crisis. Tax increases require two-thirds majority votes in the Legislature, and the Democratic majority, which insists that higher taxes have to be part of the budget solution, can't muster the necessary supermajority without Republican votes. Republicans, other than the governor, have thus far refused to support any tax hikes.
Schwarzenegger's budget is somewhere between the two camps. He wants much deeper spending cuts than Democrats and billions in new taxes.
Taylor's report says the governor's proposed 2009-2010 budget and revisions to the 2008-2009 budget show a "good-faith effort to solve a colossal budget gap."
All told, the governor proposed $14.2 billion of new revenues over the two budget cycles, $17.5 billion in spending cuts, and $10 billion of borrowing, according to Taylor's analysis.
The bulk of the new revenues would come from sales tax increases, while the bulk of the spending cuts would hit education. Schwarzenegger proposed the sale of $5 billion long-term lottery bonds and $4.7 billion of revenue anticipation warrants to finance deficit spending over the two budget years. The Raws would be sold in July and would not be repaid until June 2011, after Schwarzenegger leaves office.
Taylor singles out the "risky borrowing plan" as a source of "major uncertainty."
"The governor's budget heavily relies on access to the credit markets in order for the state budget to balance," the analyst said. "In order for the plan to work, the state would need to obtain voter approval for a lottery measure, overcome legal questions, and issue billions of dollars of debt in a credit market in turmoil."
That means convincing investors of the viability of the state's budget plan, he said.
But even before the latest round of budget deterioration, the state had trouble borrowing to meet its cash needs this year. Treasurer Lockyer was forced to scale back the state's revenue anticipation note sale by about a third, and the debt was subsequently downgraded by Standard & Poor's, which has also threatened to cut the state's long-term ratings if it doesn't come up with a credible budget plan this month.
"There are no easy paths to solving the crisis," Taylor said in his report. "But it is urgent that the Legislature and the governor act immediately to address a budgetary and cash situation that has the state on the edge of a fiscal disaster."
California is rated A-plus by Standard & Poor's and Fitch Ratings and A1 by Moody's Investors Service.