Schwarzenegger calls for across the board spending cuts

SACRAMENTO
January 8, 2008 10:40am

California Gov. Arnold Schwarzenegger says across the board spending cuts are needed to close a multi-billion dollar gap between expected revenues and planned spending in the coming fiscal year.

“To address next year’s $14 billion deficit, in two days I will submit a budget that is difficult. It does not raise taxes. It cuts the increase in spending. And it cuts that spending across the board,” Mr. Schwarzenegger says in his State of the State address.

The exact size of the budget gap is a matter of debate. Other estimates put it at $9 billion.

“The problem is that, while revenues are flat, automatic formulas are increasing spending by 7.3 percent. Even a booming economy can’t meet that kind of increase. So the system itself is the problem,” he says.

Past efforts to juggle the books will no longer work since voters have restricted those options, the governor says.

“It used to be that Sacramento plugged deficits by grabbing money everywhere it could — pension funds, local governments, bonds, gas taxes meant for transportation. But we tightened the noose by taking away those options. We passed Proposition 1A, Proposition 58 and Proposition 42,” his excerpted prepared remarks say. “We now have no way out except to face our budget demons.”

The governor wants a constitutional amendment “so that our spending has some relationship to our revenues.”

His so-called “Budget Stabilization Act” would need voter approval.

As proposed, it would:

• Establish a “Revenue Stabilization Fund,” a savings account for excess revenues taken in by California during a prosperous year. This would allow the state to transfer the difference from the RSF into the General Fund in years when tax revenues are below average and California cannot meet its spending obligations.

• Allows California to reduce spending when necessary. Under this act, state agencies must reduce their spending if a year-end deficit is projected by the Department of Finance.

• Requires the Legislature to enact a statute specifying how the state will reduce spending to meet Budget Stabilization Act requirements as soon as a deficit is projected. If the legislature does not specify the reductions—or if their reductions are insufficient—the amendment allows the governor to waive state law and regulations in order to achieve the savings needed to bring California's budget into balance.