Tuesday, July 21, 2009

California Budget Deal Closes $26 Billion Gap

California Governor Arnold Schwarzenegger and the California legislature announced yesterday that they had finally put together a budget deal that settles the states whopping $26 billion deficit. Reactions to the budget are mixed, but at least the state is finally taking responsibility for their budget. According to the LA Times, the following changes will be made to the stat budget. However, as the author points out the reductions do not add up to $26 billion, and are pretty general to say the least.


  • K-12 and community college education -- $4.3 billion
  • Higher education -- $3 billion
  • Medi-Cal -- $1.3 billion
  • State worker pay -- $1.3 billion
  • Corrections -- $1.2 billion
  • CalWorks/welfare -- $528 million
  • Home health aides -- $226 million
  • Healthy Families children’s insurance -- $124 million
  • Local transportation -- $1 billion
  • Redevelopment agencies -- $1.7 billion

Additional Revenues

  • Accelerate income tax withholding -- $1.7 billion
  • Increase estimated tax payments for businesses and the self-employed -- $610 million

New Funds

  • Sale of State Compensation Insurance Fund -- $1 billion
  • Assumed federal funds for Medi-Cal program -- $1 billion

Accounts Shift / Borrowing

  • Local government borrowing -- $2 billion
  • Education deferrals -- $1.7 billion
  • June 2010 state worker paycheck deferral -- $1.2 billion

The Wall Street Journal also published a piece with strong opinions on some of the cuts. Check out a clip of their article below, or find the entire full here.

Under the budget plan, state lawmakers would cut $15 billion in spending. The rest of the gap would be filled by taking funds from local governments and through one-time fixes and accounting maneuvers. The deal must still be approved by rank-and-file legislators, who are expected to vote on it Thursday.

"We have accomplished a lot in this budget," Mr. Schwarzenegger told reporters after lawmakers struck the deal Monday evening. "We dealt with the entire $26 billion deficit," he said.

The nation's most populous state faces a $26 billion gap in a $92 billion general-fund budget through June 2010. Mr. Schwarzenegger and legislators have been wrestling over the budget for weeks, forcing the state's chief accountant to issue IOUs to many creditors, including some welfare recipients.

As of Friday, the state had issued 153,711 IOUs, worth a total of $682 million. The office of Controller John Chiang said it would need to evaluate the budget proposal before determining when it could stop issuing the warrants.

Economists said the spending cuts would bruise a California economy already slammed by rising unemployment and foreclosure rates. "It will certainly offset a fraction of the federal-stimulus effect this fall," said Roger Noll, a professor emeritus of economics at Stanford University. "That will mean the depth and duration of the recession [in California] will both be bigger than otherwise would've been the case," he said.

The leaders of the Democratic-controlled state legislature said that of the $15 billion in cuts, $9 billion would come from education, $1.3 billion from state-worker furloughs and $1.2 billion from the prison system.

"For Democrats, I have to tell you that many of cuts we had to make, at another time, we would've thought unthinkable," said Assembly Speaker Karen Bass.

Ms. Bass also said that local governments "will have to share the pain." The state will take away $4.3 billion from local governments by borrowing from them or redirecting funds that had been earmarked for them.

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