Schwarzenegger, Other California Leaders Huddle to Discuss Deficit

By Ashley Surdin
Washington Post Staff Writer
Thursday, May 21, 2009

LOS ANGELES, May 20 -- California leaders are preparing painful cuts to deal with a ballooning budget crisis after voters rejected a handful of ballot measures that would have accounted for less than half of the state's $21 billion deficit.

Gov. Arnold Schwarzenegger (R) met with legislators in closed-door meetings Wednesday after voters resoundingly snubbed five of the six measures -- a combination of tax increases, borrowing and earmarks for education -- in Tuesday's special election. Most of them received more than a 65 percent "no" vote. The only measure approved would prevent legislators and the governor from receiving pay raises in years when the state is running a deficit.

The timing could not be worse for the Golden State, which regularly takes out short-term loans this time of year to pay its bills. California will be hard-pressed to secure a sizable loan, given its shaky credit rating and the tight lending policies at banks amid the national economic crisis.

"The legislature and the governor have very difficult decisions to make now," said Jason Dickerson, cash management analyst for the Legislative Analyst's Office, the state's nonpartisan fiscal and policy adviser. "The budget changes and payment delays that may have to be initiated will affect millions of Californians in some way or another."

Amid the prospect of another contentious fight over the budget, lawmakers tried to reassure the public that this time would be different. "The budget process will be completed quickly to help prevent a potential cash-flow shortage in July and to reassure the federal government and private investors that California is a safe investment," said Assembly Speaker Karen Bass (D-Los Angeles).

Three months ago, state legislators emerged from a lock-in at the capitol to unveil a $42 billion budget package that included the provisions voted on Wednesday.

In anticipation of Tuesday's outcome, Schwarzenegger released two early versions of the budget, one based on the measures passing and the other on their failure. The second one calls to cut more than $5 billion from schools, more than $1 billion from higher education, and $600 million from health and human services, including cuts in HIV education, the state's version of Medicaid, in-home support services and prevention programs.

It also calls for turning over thousands of undocumented immigrant prisoners to federal custody, saving the state $100 million.

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