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Stimulus money might not be enough for California

A state analysis of the federal stimulus indicates that California will get about $2 billion less than it needs to forestall the full tax hikes and budget cuts legislators approved last month.

March 11, 2009|Eric Bailey and Patrick McGreevy

SACRAMENTO — California appears likely to fall short on the federal stimulus money it needs to avoid the full brunt of tax hikes and spending cuts that lawmakers approved last month to settle a contentious 100-day budget stalemate.

Legislators had hoped to ease those new taxes and budgetary cuts with funds from the U.S. rescue package, but a fresh analysis of California's flagging fiscal situation suggests the state needs about $2 billion more than Washington is providing.

About $8 billion of the needed $10 billion in federal revenue for budget relief will be available through 2010, according to a report that Legislative Analyst Mac Taylor presented to lawmakers Tuesday.

If he's right, the state will probably be unable to avert the $1.8-billion personal income tax boost and $1 billion in slashed spending that were part of the budget package Gov. Arnold Schwarzenegger signed into law in February.

Taylor's 48-page report comes one week before a meeting of Treasurer Bill Lockyer and Schwarzenegger's finance director, Mike Genest, who are empowered by the Legislature to decide by April 1 whether enough federal money is available to scale back the taxes and cuts. Schwarzenegger's finance experts have concluded so far that the available federal funds are insufficient.

"There's mass confusion still at this stage," Schwarzenegger said during an appearance on the Capitol steps. He added that state officials have never relied on the federal money, calling it "icing on the cake."

The personal income tax is scheduled to rise by a quarter percentage point, boosting the current maximum of 9.3% to 9.55%. State officials had hoped to reap enough federal stimulus money to cut that increase in half and ease funding cuts slated for universities, courts, social services and healthcare programs.

Despite Taylor's report, some state leaders continued to express hope that the financial picture would improve enough to allow Lockyer and Genest to back away somewhat from the tax bite and spending cuts.

Assemblywoman Noreen Evans (D-Santa Rosa), chairwoman of the Assembly Budget Committee, cautioned that the legislative analyst's prediction remains for now "an educated guess." But, she added, "it's not very good news."

Taylor's report noted that his staff's estimates do not include some education-related federal money that still might flow. That could potentially take the state closer to the $10-billion mark.

During a nearly three-hour hearing of Evans' Budget Committee, Taylor cautioned lawmakers to move fast to secure portions of federal funding not yet guaranteed and to avoid raising expectations that the federal help would last longer than a year or two.

Noting that the stimulus funds are "one-time dollars," Taylor told lawmakers to "give priority to spending them on one-time things," or spread the funding over three years.

But he noted that the federal money helps "buy time" for lawmakers to enact budget reforms and other changes to make state bureaucracy more fiscally efficient.

All told, California is likely to receive $31 billion in federal stimulus funds through 2011. About a third of that money is available to address California's fiscal woes, which had the state teetering toward insolvency as lawmakers scrambled to fill a deficit of more than $40 billion.

Taylor cautioned that the hard-fought budget could unravel if voters don't approve a slate of budget-related ballot measures in the May 19 special statewide election.

"If all of those don't pass," he said, "you have a lot more work to do."

As officials grappled with revenue, two state senators proposed a partial solution -- cigarette tax increase of $1.50 a pack.

Such a hike would raise $1.2 billion a year, most of it for routine state services. But Sen. Alex Padilla (D-Los Angeles) and Senate President Pro Tem Darrell Steinberg (D-Sacramento) would allocate 15% of the money to lung cancer research, efforts to reduce tobacco use and enforcement of tobacco laws.

Assemblyman Tom Torlakson (D-Antioch) introduced legislation that would increase the tobacco tax by $2.10 per pack to raise $2 billion annually for education, children's healthcare and tobacco-related cessation programs.

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eric.bailey@latimes.com

patrick.mcgreevy@latimes.com

Times staff writer Michael Rothfeld contributed to this report.

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