Federal stimulus not enough to stop major state cuts in California

SACRAMENTO
March 27, 2009 11:00am

California cannot be assured of getting at least $10 billion in federal aid by June of next year, says state Treasurer Bill Lockyer, keeping in place planned cuts in spending and increases in taxes.

Had there been the clear assurance of the $10 billion flowing from Washington into Sacramento, some $948 million in spending cuts and $1.8 billion in tax increases effective July 1 could have been avoided under terms of the so-called budget “fix” approved by the state Legislature and governor last month.

Mr. Lockyer says the highest estimate of additional federal funds that he and the Department of Finance can reach is $8.17 billion.

And it gets worse, he says.

“The decisions the Director of Finance and I make today do not obviate the need for more corrective fiscal actions in May,” Mr. Lockyer writes in a letter to the governor and legislative leaders.

“The choices before the Legislature and Governor become bleaker with each morning's headlines. The municipal credit markets only slowly recover. Employment worsens. The State's short-and long-tenn fiscal outlook erodes. As a result, only a month following the budget's enactmenl, the State faces the prospect of ending 2009-10 with a deficit 01'$6 billion or more. Irrespective of our determination, the Legislature likely will have to reopen the February budget compromise to add revenues and/or cut more programs and services,” says Mr. Lockyer.