(CNSNews.com) – Spending by California's state government has increased 32 percent since Republican Gov. Arnold Schwarzenegger took office in 2003, and now the state is running out of money and is having difficulty borrowing it.
A group of state officials met yesterday to discuss freezing numerous state projects, and, even in the midst of a recession, the Democrat-controlled state legislature is now planning to increase the state's sales and gas taxes and add a "surcharge" to the state income tax.
California's annual state spending has grown from $78 billion in fiscal 2004 to $103 billion in fiscal 2009, according to the California Department of Finance Web site.
That means the state budget adopted under Schwarzenegger this year is $25 billion larger than the last budget adopted under Democratic Gov. Gray Davis, whom Schwarzenegger replaced in a recall election.
California now faces a $9.5 billion budget shortfall and a projected $41.8 billion budget gap by July of 2010, according to the governor’s weekly radio address last week.
Last week, Schwarzenegger unveiled a big clock in front of the state capitol in Sacramento to illustrate the magnitude of the crisis. The clock shows that every second California spends $470 more than it takes in. That means the state spends $40 million more than it collects in revenue, every single day.
“If the Legislature doesn't act before the end of this month, we will have to stop $5 billion of construction projects,” said California Finance Director Mike Genest, who filled in for the governor on his Dec. 13 radio address.
California’s lack of cash threatens to halt construction projects, even before the end of the month, according to the Los Angeles Times. Officials are meeting to freeze financing on road, levee, school and housing construction, the newspaper said.
Cash has been hard to come by because the credit crunch has made it more difficult for the state to sell bonds.
On Oct. 2, Schwarzenegger sent a letter to U.S. Treasury Secretary Henry Paulson warning that California would be unable to make critical payments to schools, local governments and law enforcement if it could not find a buyer for its bonds. He told Paulson he may be forced to ask the Treasury for a short-term loan if California were unable to sell $7 billion in bonds.
“While some states may be able to obtain high-interest financing through private banks, California is so large that our short-term cash flow needs exceed the entire budget of some states,” Schwarzenegger told Paulson.
The California Treasury managed to sell $5 billion in bonds in October -- though, the state’s broker, Charles Schwab, said the state had difficulty in doing so.
California is still attempting to sell another $2 billion in bonds, but even if it is successful, money from the sale won’t be enough to cover the $9.5 billion budget gap.
In the midst of the state’s cash flow crisis, meanwhile, the governor has announced several million dollars worth of new spending over the last two months:
-- On Oct. 2, the same day he wrote the letter to Henry Paulson about the state’s need for cash, Schwarzenegger announced the state would spend $40 million on job training – “to help workers gain new skills and keep California businesses competitive.”
-- On Oct. 29, a press release from the governor’s office announced $300 million would be spent on infrastructure.
-- On Dec. 10, he appropriated $727 million to modernize schools.
-- On Dec. 11, Schwarzenegger awarded $1.5 million to improve healthcare workforce training.