Governor Arnold Schwarzenegger declared a fiscal emergency for the State of California on Monday. The Governor blamed the state’s growing budget shortfall and called on lawmakers to rally to his plan for closing the current $11.2 billion budget shortfall during a special legislative session in his office.
During the session, the Republican governor and former actor addressed the state’s sluggish economy and called for a combination of measures including difficult spending cuts and generating of new revenues to solve the state’s swelling budget gap estimated to grow to a staggering $28 billion over the next 18 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,” said Schwarzenegger.
Gov. Schwarzenegger has also met with President–elect Barack Obama and other U.S. governors to focus on public works to jump-start the economy.
Schwarzenegger said that the state’s legislature needs to attack the problems head-on. The difficult choices for the future of California include measures such as an economic stimulus package to help retain and create jobs, keep Californians in their homes and fix the state’s Unemployment Insurance Fund.
“I compare the situation that we are in right now to finding an accident victim on the side of the road that is bleeding to death,” said Schwarzenegger.
“We wouldn’t spend hours debating over which ambulance we should use, or which hospital we would use, or which treatment the patient needs. No, we would first stop the bleeding and that’s exactly the same thing we have to do here.”
In order to fix the state’s spending problem, Gov. Schwarzenegger has worked to keep state’s spending relatively flat for the past three budget cycles. The dramatic deterioration in revenue projections however, combined with the volatility of the state’s tax system show that over the next 18 months the budget deficit will continue to grow reaching $28 billion.
Schwarzenegger has also proposed to tackle the state’s financial woes and balance the California books by raising the state’s sales tax for three years and from severance tax on oil production in California.
The budget of the most populous U.S. state routinely falls into a deficit. But recently, California has suffered from slow retail activity, sluggish revenues amid rising unemployment and turmoil in financial markets, which has raised growing concerns among investors and state officials. Economists also do not expect a swift recovery any time soon.
Now after the Governor declared a fiscal emergency, state law requires that the state enact a ban on most borrowing to cover deficits. The lawmakers have a Jan. 15 deadline to agree on a plan to balance the state’s books and to close the state’s $11.2 billion budget gap.
If the legislature doesn’t meet the deadline, the lawmakers have to stay in session working only on the budget deficit, crafting measures on ways to stimulate the economy and cut spending, until agreement is reached.
