By JULIET WILLIAMS, The Associated Press 1:13 p.m. December 1, 2008
SACRAMENTO — Gov. Arnold Schwarzenegger on Monday declared a fiscal emergency and called lawmakers into a special session to address California's $11.2 billion budget deficit.
Unless budget corrections are made quickly, the state is likely to run out of cash in February and see its revenue gap widen to $28 billion over the next 19 months.
"Without immediate action, our state is headed for a fiscal disaster, and that is why with more than two dozen new legislators sworn in today, I am wasting no time in calling a fiscal emergency special session," Schwarzenegger said in prepared remarks.
The Republican governor and Democrats in the Legislature have proposed a combination of tax hikes and spending cuts, but Republican lawmakers have remained steadfast in their refusal to raise taxes.
Lawmakers failed to reach a compromise during the special session Schwarzenegger declared last month, pushing the problem to the new Legislature that was sworn in Monday.
There appeared to be little reason to believe that Republican lawmakers are any more likely to support Schwarzenegger's compromise appeal for program cuts and tax increases than they were when they rejected a Democratic proposal to do that last week.
"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, R-Modesto, said Monday.
Democrats were expected to gain three seats in the state Assembly, but failed in the November elections to win a two-thirds majority in either house, which is needed to pass tax increases or a state budget.
Democrats proposed $8.2 billion in spending cuts and $8.2 billion in tax increases during the special session Schwarzenegger called last month, but Republicans rejected the package because of the taxes. Instead, they seek an economic stimulus program to kick-start the economy.
Schwarzenegger asked for both, offering essentially the same plan legislative leaders 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.
Schwarzenegger called two special sessions, one addressing the budget deficit in the current fiscal year and another to consider an economic stimulus plan.
The stimulus session would focus on two issues: preventing more home foreclosures through loan modifications and preventing the state's unemployment insurance fund from sliding into insolvency. The governor wants to raise the taxes employers pay into the pool and slightly reduce benefits.
Without changes, the unemployment fund is projected to have a $2.4 billion shortfall next year, according to the governor's office.
Schwarzenegger enacted the fiscal emergency under Proposition 58, the initiative approved by voters the year after he took office. It forces the Legislature to address the current-year budget deficit within 45 days.
If lawmakers do not, they would be prevented from acting on any other bills until the problem is solved.
Schwarzenegger was expected to declare the fiscal emergency in Sacramento, but thick fog prevented him from flying from Southern California to Sacramento. The governor instead made the announcement at his Los Angeles office.
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Associated Press writers Samantha Young in Sacramento and Solvej Schou in Los Angeles contributed to this report.
