May 12 (Bloomberg) -- California’s budget deficit has grown so severe that Governor Arnold Schwarzenegger<http://search.bloomberg.com/search?q=Arnold+Schwarzenegger&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1>said he may be forced to release 40,000 prisoners or lay off 51,000 teachers if voters next week reject three budget balancing measures.
The state’s <http://www.bloomberg.com/apps/quote?ticker=BCAX%3AIND>projected deficit will swell to $15 billion between now and June 2010, Schwarzenegger told lawmakers late yesterday. Half the gap falls in the current fiscal year that ends in seven weeks. If voters reject plans to sell bonds backed by lottery profits and siphon tax receipts from tobacco and high earners already dedicated to special programs then the deficit would expand by another $6 billion. The ballooning deficit comes three months after lawmakers passed a package of spending cuts and tax increases to fill a record $42 billion shortfall and end a cash shortage that prompted officials to prepare to issue IOUs for the first time since the Great Depression. In the intervening months, tax revenue declined further along with the state’s economy. “The severe economic downturn that California, like the rest of the nation, has been facing has worsened substantially,” Schwarzenegger said in a letter to lawmakers. “These changes in the state’s economic and revenue pictures have caused a significant new budget problem to emerge.” California’s full faith and credit pledge is rated A by Standard & Poor’s and an equivalent A2 by Moody’s Investors Service, five grades below the top investment ranking. Cash Flow The state’s Legislative Analysts Office said in a report<http://www.lao.ca.gov/2009/stadm/cash_flow_update/cash_flow_update_050709.aspx>May 7 that California will probably need to borrow an unprecedented $23 billion of so-called cash flow notes or warrants by October to pay day-to-day bills, an amount that may be impossible to raise amid poor credit market conditions. If voters approve the budget balancing measures, the amount would drop to between $10 billion and $17 billion. Schwarzenegger, in his letter to lawmakers, said he will publish two detailed spending plans on May 18. One will assume the ballot measures pass and the deficit is $15 billion. The other will detail cuts that will be needed if the measures fail and the deficit exceeds $21 billion. The measures were put on the ballot as part of the budget agreement that Schwarzenegger and Democratic lawmakers struck in February. Proposition 1C<http://www.voterguide.sos.ca.gov/title-sum/prop1c-title-sum.htm>would allow the state to sell $5 billion of bonds backed by future state lottery proceeds and use the money to balance the budget, repealing a provision in the state’s 25- year-old lottery laws that require profits to be spent on education. This is needed, state officials say, to convince investors there will be sufficient money available to make debt service payments. Tobacco Tax If approved, the measure would require lawmakers to appropriate to schools each year at least the same amount of money the lottery sent them in 2008. Proposition 1D<http://www.voterguide.sos.ca.gov/title-sum/prop1d-title-sum.htm>would allow the state to strip $600 million over five years from a program that spends tobacco tax revenue on children’s health. Proposition 1E<http://www.voterguide.sos.ca.gov/title-sum/prop1e-title-sum.htm>would siphon $250 million a year from a mental health services program financed by an income tax increase approved by voters in 2004. Also on the ballot is Proposition 1A<http://www.voterguide.sos.ca.gov/title-sum/prop1a-title-sum.htm>, which would limit state spending to inflation plus 3 percent above a 10-year average. Any excess revenue above that cap would be deposited in a rainy day fund. When the amount in the fund exceeds 12.5 percent of the general fund, lawmakers can choose to spend the excess on one-time needs. If Proposition 1A passes it would extend three temporary tax raises lawmakers approved as part of the budget in February. In all, the measures would increase taxes by $16 billion, according to state finance officials. Reserve Fund Proposition 1B<http://www.voterguide.sos.ca.gov/title-sum/prop1b-title-sum.htm>would require the state to pay $1.5 billion from the rainy day fund to schools for six years starting in 2011. If Proposition 1A fails, it nullifies Proposition 1B. Proposition 1F<http://www.voterguide.sos.ca.gov/title-sum/prop1f-title-sum.htm>would prohibit state lawmakers and elected officers from salary raises in years when the state is running a deficit. A Field Poll <http://www.field.com/fieldpollonline/subscribers/Rls2305.pdf>published April 30 found all the measures except Proposition 1F lack enough voter support to pass. At a town hall meeting in Culver City yesterday Schwarzenegger said budget cuts he’s considering if the measures fail include cutting the state firefighting budget by 10 percent; releasing 40,0000 non-violent, non-sex offender inmates; laying off either 51,000 teachers or 90,000 janitors, cooks and bus drives; shutting down public schools for 18 days a year or boosting class sizes by 17 percent; and siphoning $2 billion meant for local governments to pay for services such as firefighters and police officers. Opponents of the ballot measures accused Schwarzenegger of resorting to fear-mongering. “It’s just the latest scare tactic the governor has used to put fear into the voters to pass his failing measures,” said Mike Roth, spokesman for the labor unions opposed to the spending cap. -- Thanks & Regards, Abhishek Kothari --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. 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