- The Washington Times - Wednesday, July 22, 2009

SACRAMENTO, Calif. | California’s legislative leaders on Tuesday began lobbying their rank-and-file members to vote for a compromise intended to close the state’s $26 billion shortfall even as advocates objected to health care, transportation and public safety cuts.

The Republican and Democratic leaders of the Assembly and Senate began briefing their caucuses on a plan backed by Gov. Arnold Schwarzenegger to close the gap by cutting spending, taking money from local government and speeding up tax collections.

The state needs to pass a revised annual spending plan before it can assess its finances and stop issuing more IOUs.

“Getting this budget agreement enacted will be a big step forward, but our state still has a lot of hard work and sacrifice ahead before we are out of the woods,” state Treasurer Bill Lockyer said.

Lawmakers already have begun hearing from law enforcement agencies, local governments and union officials about the potential effects of the budget deal. A contentious vote is expected Thursday.

The governor and lawmakers announced the compromise late Monday, nearly three weeks after the state began issuing pay-you-later warrants to thousands of state contractors and vendors. Many recipients had trouble finding someone to take them after several major banks stopped accepting IOUs.

Mr. Schwarzenegger and legislative leaders say their plan would get the state back on firm financial ground and prevent further sinking of the state’s credit rating, already the lowest in the nation.

The agreement was not expected to resolve California’s financial problems as the economy continues to struggle and tax revenue lags far behind the level of the boom years.

“This is, of course, one of the most difficult economic times to face our state since the Great Depression, so none of these were easy choices,” said Assembly Minority Leader Sam Blakeslee, San Luis Obispo Republican. “I think we selected a path which will lead the state back to the point where we will be strong.”

Personal income fell this year in California for the first time in 70 years, leading to a 34 percent plunge in income-tax revenue during the first half of the year. California’s unemployment rate hovered at 11.6 percent in June, the highest in modern record-keeping.

The $26.3 billion shortfall amounts to nearly 30 percent of the state’s general fund, which pays for day-to-day state services. The sheer size of the deficit meant that any effort to balance the state’s books would be felt throughout the state, from college students seeing a sharp increase in fees to local police and fire departments that face cuts as the state takes about $4 billion from city and county governments.

Monday’s agreement reduced general fund spending from $92 billion to $88 billion, taking California back to 2005 levels.

The compromise includes billions in cuts to education, health care, prisons, welfare and other programs. The rest of the deficit would be made up by a combination of borrowing from local governments, shifting money from other government accounts and accelerating the collection of certain taxes.


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