Monday, October 12, 2009

California’s Budget Suffers ‘Major Blow’ as Debt Sales Loom


California’s revenue collections trailed its forecasts by $1.1 billion during the first three months of the fiscal year, showing new deficits are emerging in the budget Governor Arnold Schwarzenegger signed July 28.

Revenue was 5.3 percent less than was assumed in the $85 billion annual budget during the three months ended Sept. 30. Income tax receipts led the shortfall, as unemployment reached as high as 12.2 percent in August.

“Revenues more than $1 billion under estimates and recent adverse court rulings are dealing a major blow to a budget that is barely 10-weeks old,” Controller John Chiang said in a statement. “While there are encouraging signs that California’s economy is preparing for a comeback, the recession continues to drag state revenues down.”

The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing.

The budget news comes as the most populous U.S. state prepares to sell as much as $15 billion of bonds in the next nine months to refinance debt and fund public-works projects.

California, already the largest borrower in the municipal market, may offer as much as $4 billion of debt during the week of Oct. 26 to refinance the bonds used by Schwarzenegger to cover previous budget deficits. The budget enacted in July would allow the sale of as much as $11 billion more of general obligation bonds through the June 30 end of the fiscal year if financial markets allow, state Treasurer Bill Lockyer said. The exact sale amount hasn’t been decided.

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