Democrats were already girding for a fight over the administration's budget reduction proposals -- and hints from administration officials that they might ask schools to sacrifice some of the money they are guaranteed under voter-approved spending formulas.
Sen. Darrell Steinberg (D-Sacramento), who sits on the Senate Budget Committee, called on the governor to consider reining in not just spending, but also tax breaks for businesses.
"If we are going to talk about the spending side, which we must, we should look at tax credits and that side of the ledger as well," Steinberg said.
It was less than a year ago that the governor was presenting a budget plan that he boasted would leave the state with an operating deficit of "zero." But the budget that lawmakers ultimately passed in August included a shortfall of $6.1 billion for lawmakers to contend with in the coming year. Since then, the situation has worsened.
Recently, administration officials acknowledged that receipts through September -- just three months into the fiscal year -- were about $1.5 billion below projections.
The administration's plan to bring $1 billion into state coffers through the privatization of EdFund, a government agency that backs student loans, may not take place this year -- and may not bring anything close to the funds state officials had hoped.
The administration had been relying on increased property tax payments for an additional $1.3 billion in revenue. Experts warn that, at a time when home prices are dropping and homeowners are demanding reassessments of their property taxes, most of that money is unlikely to materialize.
The state is also being forced to confront the consequences of not saving money when times were better.
When the economy improved nationwide several years ago, most states erased chronic deficits and began building rainy day funds. California did not. It continued to spend more money than it brought in.
"We never fixed the problem," said Chris Thornberg, a principal with Beacon Economics. "It's been Scotch tape and glue and staples and just praying we will never have to face the reality that state government is on a path that is not sustainable."
Thornberg said the trouble in the housing sector is reverberating through the entire state economy, causing income and consumer spending to decline. He noted that unemployment is up a full percent since the beginning of the year, a jump that typically foreshadows recession.
