California Will Begin 2010 With Massive Budget Gap

fromKQED

California's dismal financial straits this year are just a prelude to what the state can expect in terms of budget woes in 2010. Legislators and the governor battled through much of 2009 to close a $60 billion budget gap. Now they are looking at another, bigger tidal wave of red ink in coming months.

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STEVE INSKEEP, host:

Arnold Schwarzenegger begins his final year as governor of California in 2010. It's another year that begins with another multibillion-dollar state budget deficit. Schwarzenegger is looking to the federal government for help. John Myers of member station KQED has more.

JOHN MYERS: At an event just a few miles from the state capital in Sacramento, Arnold Schwarzenegger was asked whether he had any New Year's resolutions in mind.

Governor ARNOLD SCHWARZENEGGER (Republican, California): Jobs, jobs, jobs. That's the only thing that I can think of. Because to me, you see, you know, you can talk about all the details in the world but the people in California need jobs.

MYERS: California's unemployment rate exceeds 12 percent, a sign the state's economy continues to struggle. That struggle over the course of 2009 left Schwarzenegger and legislative leaders having to find more than $60 billion worth of ways to erase the state's budget deficit.

The long political battle over the budget also took its toll on California's reputation nationwide.

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MYERS: When IOUs started rolling off the printing presses this past summer, it was a symptom of a budget process that had gotten so bad it had starved the state of actual cash to pay its bills. Even now, California is living off of borrowing - both from internal special funds and billions more from Wall Street investors. In fact, a state report shows over the last 10 years, annual interest payments on debt have risen 138 percent, while California's revenues have only grown 24 percent - and it may only get worse.

California's credit rating is now dead last than all states, and lower than some countries. That makes borrowing much more expensive, a fact driven home at a recent legislative hearing by the state's treasurer, Bill Lockyer.

Mr. BILL LOCKYER (State Treasurer, California): Compared to, you know, Indonesia, the Philippines and so on, we're paying substantially more than third-world countries, merging markets, are paying for their debt.

MYERS: State leaders are now staring down at another budget gap - $21 billion through the summer of 2011. And there's a growing sense the days of California's budget balancing gimmicks might finally be coming to an end. That's because so many of them have already been used - from plans to sell off state operations that never panned out, to moving the payday for state workers a few hours into a new fiscal year and counting it as a billion-dollar savings in the budget year that had just ended.

Those gimmicks have been driven by bitter partisan fighting over cutting state programs or raising taxes. One new fight likely to emerge in California in 2010: a repeal of tax breaks given to big business. A leader of the California state senate, Democrat Darrell Steinberg, recently suggested support for such a plan.

State Senator DARRELL STEINBERG (Democrat, California): We give billions of dollars in business tax credits and nobody really knows whether or not they're really creating jobs, and I'm a big skeptic.

MYERS: While Governor Schwarzenegger's new budget plan is not yet public, it's reported he will ask for as much as $8 billion in help from the feds. If the state doesn't get it, Schwarzenegger will reportedly call for the total elimination of welfare and in-home health care programs. Those kinds of cuts could be devastating, and they might only fuel the national perception that California is now less the promised land and more the comic punch line.

For NPR News, I'm John Myers in Sacramento.

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