SAN FRANCISCO - California's cash position continued to deteriorate in December, Controller John Chiang said Friday in his monthly cash flow report.

From July 1 to Dec. 31, the state's general fund collected $41.4 billion, which is $2.3 billion less than expected under its current budget, the report said. The state spent $59.1 billion in the first seven months of the fiscal year, $444 million less than budgeted. The cash flow deficit is $17.7 billion, $1.8 billion more than planned.

"December's receipts were in line with the severe downward spiral we expected," Chiang said.

The California economy has been hit hard by the U.S. recession and the housing crisis, reducing sales and income tax collections sharply in the last three months of 2008. State finance officials estimate that the current 2008-2009 budget is on track to post a deficit of almost $15 billion.

The comptroller and other finance officials continue to push state lawmakers to come up with a solution that closes the two-year $40 billion budget gap. Democrat and Republican lawmakers are deadlocked over whether to raise taxes and how much to cut spending. Two-thirds of the Legislature must approve California tax increases, forcing the two parties to reach consensus to balance the budget.

"We are short on cash and running even shorter on options," Chiang said. "Without budget solutions from the governor and Legislature, the state could be reduced to extreme measures that prolong the current recession, devastate local governments, and place an even greater burden on California taxpayers."

Chiang has said the state may have to start paying some bills with IOUs, or registered warrants, by next month. The state's unborrowed cash balance fell to $3.2 billion last month, which about half the expected level, the report said. The state uses its cash for internal borrowing needs, and it has already lent $19.2 billion of its $22.4 billion in available resources.

December revenue came in $831 million below budget, the report said. Personal income tax revenues were $392 million below and retail sales taxes were down by $219 million.

December revenue collections fell 3% from the same month a year ago. That's a smaller decline than the 17% drop in November. The controller's report said the timing of the Thanksgiving holiday may have exaggerated November's weakness and December's strength.

"November's late Thanksgiving holiday left only one business day before the end of the month, which pushed the posting date of some tax payments into the first week of December," Chiang's report said. "It is unclear how much of these dollars were the result of timing issues or real revenues gains, but they do not improve the state's cash position" because they were matched by higher-than-expected spending in December.

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