Schwarzenegger Declares Fiscal Emergency in California

December 1, 2008 - 5:11 PM
Gov. Arnold Schwarzenegger declared a fiscal emergency Monday and called lawmakers into a special session to address California's $11.2 billion deficit.
Sacramento, Calif. (AP) - Gov. Arnold Schwarzenegger declared a fiscal emergency Monday and called lawmakers into a special session to address California's $11.2 billion deficit.
 
The state's revenue gap is expected to hit $28 billion over the next 19 months without bold action. The emergency declaration authorizes the governor and lawmakers to change the existing budget within 45 days.
 
The state is likely to run out of cash in February.
 
"Without immediate action, our state is headed for a fiscal disaster, and that is why ... I am wasting no time in calling a fiscal emergency special session," Schwarzenegger said in prepared remarks.
 
The Republican governor and Democratic lawmakers have proposed a combination of tax increases and spending cuts, but Republican lawmakers steadfastly refuse to raise taxes.
 
No compromise could be reached during a special session last month, which pushed the problem to a new Legislature being sworn in Monday. But there appeared to be little reason to believe that Republican lawmakers would budge.
 
"If anything, I think our resolve (against raising taxes) is deeper than it has ever been because of the economic realities," Senate Minority Leader Dave Cogdill said Monday.
 
Democrats don't have the two-thirds majority in either the Assembly or Senate that is required to pass tax increases or a state budget.
 
During last month's session, Democrats proposed $8.2 billion in spending cuts and $8.2 billion in tax increases. Republicans rejected it and instead sought an economic stimulus program.
 
Schwarzenegger asked for both, offering essentially the same plan rejected last month.
 
His proposal includes raising the state sales tax by 1.5 percentage points - or 1 1/2 pennies on the dollar - for three years, generating $3.5 billion in the current fiscal year. He also seeks to increase the annual fee for registering vehicles.
 
The stimulus would focus on loan modifications to prevent more home foreclosures and saving an unemployment insurance fund from insolvency by raising taxes employers pay into the pool and slightly reducing benefits.
 
Schwarzenegger enacted the fiscal emergency under a voter-approved initiative. If the Legislature fails to address the current-year budget deficit within 45 days, the initiative prevents them from acting on any other bills until it's resolved.
 
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Associated Press writers Samantha Young in Sacramento and Solvej Schou in Los Angeles contributed to this report.