"If we don’t act," said Governor Arnold Schwarzenegger on June 2, 2009, to a joint session of the California Legislature, "the state will simply run out of money and go insolvent." Tough words to sell some tough budget cuts. Californians recently rejected several ballot measures designed to minimize the state’s runaway budget deficit, which is now projected at $24 billion. State Controller John Chiang has warned that, without a budget, the state will likely run out of cash by July 31, 2009, a situation that has contributed to the lowest rating of all 50 states on California’s general obligation bonds.
The Governor’s proposed budget contains approximately $21 billion in spending cuts, which target many social services, including Medi-Cal, public education, and prisons. The Governor also proposes to finance $5.5 billion of the deficit with revenue anticipation warrants, a debt instrument that is typically used to cure temporary cash flow problems, rather than large-scale budget deficits. The Governor’s budget does not include an increase in existing tax rates. It does, however, propose several strategies to increase revenue, including a 10% increase in personal income tax withholding, accelerated estimated tax payments, and the sale of parts of the State Compensation Insurance Fund. The Constitutional deadline for passing a budget was June 15, 2009.