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California nearly out of cash, state official warns

Despite the budget fix enacted in February, the state is $20 billion short of what it needs to pay its bills over the next several months, says Mac Taylor, the Legislature's chief budget analyst.

May 08, 2009|Evan Halper and Eric Bailey

SACRAMENTO — California could run out of money as soon as July, the Legislature's chief budget analyst warned Thursday, as a new poll showed voters poised to reject five budget-related measures on the May 19 ballot.

If the propositions do not pass, the state could find itself as much as $23 billion short of the money it needs to pay its bills over the next year, according to a new forecast by Legislative Analyst Mac Taylor. The poll, from the Public Policy Institute of California, found that even as voter interest in the ballot measures rises, all are trailing except the sixth one -- Proposition 1F, which would bar pay hikes for lawmakers in deficit years.

The other measures would provide the state with as much as $6 billion in the coming year through borrowing against the California State Lottery and temporarily reducing some social services.

One proposition, 1A, which barely one in three likely voters supports, the poll shows, would extend recently enacted tax hikes until 2013, plumping state coffers by another $16 billion.

All of the proposals were placed on the ballot by the governor and lawmakers as part of a February budget agreement. That plan was intended to keep the state solvent well into next year, but it was quickly knocked out of balance by the deteriorating economy.

Adding to the fiscal woes, the Obama administration is threatening to pull $6.8 billion in stimulus funds from California in a dispute over an earlier state budget cut.

"The Legislature is going to need to act promptly," said state Department of Finance spokesman H.D. Palmer. "We have a fairly short window to get a lot done."

As the ballot measures lag in the polls, the administration of Gov. Arnold Schwarzenegger has begun revealing the cuts it is weighing as an alternative.

On Thursday, the administration advised law enforcement officials that it was preparing plans to commute the sentences of 38,000 state prison inmates, including all illegal immigrants. It also is considering closing some prisons and sending inmates to county jails, according to a copy of the proposal obtained by The Times.

Under the plan, 19,000 illegal immigrants -- 11% of state prisoners -- would be turned over to the U.S. Immigration and Customs Enforcement Agency after having their sentences commuted. An additional 19,000 "relatively low-risk offenders" would have their sentences commuted as well.

Earlier in the week, the administration warned local officials that it may raid their budgets for $2 billion and close firehouses.

Opponents of the ballot measures call such proposals scare tactics.

"It's all about fear," said Jon Coupal, president of the Howard Jarvis Taxpayers Assn. "This week it's firefighters; next week they'll threaten school closures."

Even if the measures succeed, Taylor said, the state faces serious and immediate financial problems. California's credit rating is so weak that the state is unlikely to be able to borrow money to buy time to address them, he wrote. Lenders have signaled to California that they may not be able to make loans on the scale the state would need.

"Without additional legislative measures to address the state's fiscal difficulties or unprecedented amounts of borrowing from short-term credit markets, the state will not be able to pay many of its bills," Taylor wrote.

He cautioned lawmakers against asking the federal government to help the state secure loans that might provide relief. "The difficult decisions to balance the state's budget now are preferable to Californians losing some control over the state's finances and priorities to federal officials for years to come," Taylor wrote.

The debate over what budget actions to take is expected to intensify once Schwarzenegger issues a revised spending plan later this month.

The unpopularity of the ballot measures appears to reflect intense voter distrust of Sacramento. Just 16% of likely voters say they trust the state government to do the right thing. Schwarzenegger's approval rating remains at a near-historic low, 34%. The state Legislature's, meanwhile, stands at an anemic 12%.

"The voters seem interested in delivering a message," said Mark Baldassare, Public Policy Institute of California president and survey director. "The measures are very complex and confusing to voters -- and they don't seem to have trust in what the governor and Legislature have put before them."

Just 28% of likely voters say they are following news about the ballot measures very closely, although that number is up from 18% in March. Those voters are focusing most of their attention on Proposition 1A.

That measure would place strict limits on future state spending and boost the size of the state's reserves, in addition to extending the recent tax hikes. But only 35% of likely voters say they'll back it.

This is the second time in recent years that spending restraints are coming before voters.

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