California could be broke by July, state official warns

California has an unprecedented cash crisis and could run out of money as soon as July if lawmakers and the governor do not act to stop the financial hemorrhaging, according to a new forecast by the Legislature's chief budget analyst.





"Without additional legislative measures to address the state's fiscal difficulties or unprecedented amounts of borrowing from short-term credit markets, the state will not be able to pay many of its bills on time for much of its 2009-2010 fiscal year," Taylor wrote.

The budget package that Gov. Arnold Schwarzenegger signed into law in February, averting an earlier cash crisis, was intended to keep the state solvent through June of next year. But the deterioration of the economy quickly knocked that spending plan out of balance. The analyst cautioned lawmakers against asking the federal government to help the state secure loans that might provide relief. In such a scenario, the federal government would guarantee lenders that it would repay them if California defaulted. The analyst said such provisions would be likely to have strings attached and could give the federal government too much authority over state affairs.


"The difficult decisions to balance the state's budget now are preferable to Californians losing some control over the state's finances and priorities to federal officials for years to come," Taylor wrote.

He further warned that if lawmakers put off acting until well into summer, state finance officials could be forced to take measures even more extreme than those taken during the winter budget impasse, when taxpayer refunds, student grants, welfare checks, money owed to vendors and other payments were suspended.

This summer, Taylor said, the state may need to suspend employees' pay and cut off funds to local governments.

California lawmakers have few options to address the problem beyond deep spending cuts and more tax hikes. Republican lawmakers vowed to block any further tax increases after billions of dollars in new and higher taxes on sales, motor vehicles and personal income were approved as part of the February budget package. And both the Senate and Assembly Republican caucuses now are led by lawmakers who have never negotiated a state budget.

Assembly Speaker Karen Bass (D-Los Angeles) said the latest news underscores that California is "in a world of hurt," and that upcoming budget negotiations will have to focus on "devastating cuts."

Speaking from Washington, D.C., where she has been lobbying federal officials for more financial help, Bass said she was hopeful the state would obtain more stimulus money. She also suggested Democrats may revive an earlier effort to use legal maneuvers to revise the state's spending plan on a simple majority vote rather than the two-thirds majority normally required. That process would skirt the need for any GOP votes, but Republicans say such a move would be unconstitutional.

The debate over what budget actions to take is expected to intensify once Schwarzenegger issues his revised spending plan later this month.
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