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Budget Signed, Blue Pencil Activity and Continued Deficits

Budget Signed, Blue Pencil Activity and Continued Deficits
Tuesday, Governor Arnold Schwarzenegger signed the 27-bill package that contained most of the negotiated budget modifications designed to close the state’s $26.3 billion deficit and create a $1 billion reserve. The approved package of bills totaled approximately $25 billion in reductions, revenue shifts and program changes. 
Prior to approving the package, Governor Schwarzenegger used his line-item veto authority to further reduce state spending by an additional $656 million. Schwarzenegger has vowed to use his veto-power to restore most of the budget reserve that was lost when the Assembly failed to approve $1.1 billion in negotiated budget remedies. Those remedies included a $1 billion revenue shift in gas taxes from local government to the state general fund and $100 million for permitting limited off-shore oil drilling.
The governor’s vetoes, which made additional cuts to health and human services programs, caused an uproar among democrat legislators who negotiated the budget deal, and special interest advocacy groups. According to Senator Darrell Steinberg – the Senate Pro Tem – they will fight to restore every additional dollar cut by the governor. Critics are already considering legal options, arguing that the vetoes are illegal.
When the Legislature reconvenes in August, they will continue to address the state’s declining revenues. Despite approximately $60 billion in budget solutions this year, which includes $31 million in spending reductions, $12.5 billion in tax increases, $8 billion from federal stimulus funds and $8.5 billion in borrowing, revenue shifts and administrative restructuring, the state fiscal woes remain.  According to Governor Schwarzenegger’s finance director, Michael Genest, even with passage of the revised budget the state will need to borrow $8-10 billion to cover costs in the current year. He also explained that California will likely face an additional $7-8 billion deficit next year. These deficit numbers could increase if the state economy and unemployment rates continue to worsen.
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