Schwarzenegger Seeks $7.4 Billion in Additional California Budget Cuts

California Governor Arnold Schwarzenegger, who leaves office next month, proposed slashing state spending by an additional $7.4 billion to help ease a $25 billion deficit projected for the next 18 months.

His plan would cut $886 million from the fiscal year ending June 30 and another $6.5 billion next year, including money for child-welfare programs and prisons, he said today at a press conference in Sacramento. He also would raise $937 million from various fees, including one charged to homeowner insurance policies for fire protection.

The governor, who called a special budget session of the Legislature, also would divert vehicle-weight fees to pay debt service on transportation bonds to free money currently being spent on the debt and would sell advertising on state-owned highway signs.

“If there is one thing we have learned over these past few years, it is that the longer we wait to tackle the problem, the larger and more difficult it is to solve,” Schwarzenegger said.

California, the eighth-largest economy in the world, is facing a projected $25.4 billion budget gap over the next year- and-a-half after the global recession dropped tax collections 12.7 percent since 2007. Schwarzenegger, a Republican, will leave office Jan. 3 when Governor-elect Jerry Brown, a Democrat who previously held the job from 1975 to 1983, is sworn in.

Photographer: Kevork Djansezian/Getty Images

California Governor Arnold Schwarzenegger speaking in Los Angeles. Close

California Governor Arnold Schwarzenegger speaking in Los Angeles.

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Photographer: Kevork Djansezian/Getty Images

California Governor Arnold Schwarzenegger speaking in Los Angeles.

Fiscal Emergency

The latest cuts are in addition to the $7.5 billion lawmakers slashed two months ago, and more than $30 billion cut in 2008 and 2009.

Schwarzenegger’s declaration of a fiscal emergency today means lawmakers must take up legislation to deal with it within 45 days. If they fail to meet that deadline, they are barred from doing other legislative work or adjourning until they address the emergency. The Legislature can amend the proposal or pass one of its own.

Democratic leaders in both chambers have already said they prefer to delay taking up Schwarzenegger’s proposals and instead wait for Brown to take office. The Assembly, which convened today for a new two-year session, isn’t scheduled to meet again until after Brown takes office.

‘More Painful’

“Now, many people have questioned my decision to call this special session given that it’s my last month in office,” Schwarzenegger said during his weekly radio address yesterday. “Some of the legislators have said they would prefer to wait until the next governor. But every day of inaction, the problem grows bigger and the cuts become more painful.”

Standard & Poor’s rates California general-obligation debt A-, its fourth-lowest investment grade and lowest of any state. Moody’s Investors Service gives it an A1, one step higher. Fitch Ratings also ranks it A-.

Schwarzenegger and lawmakers Oct. 8 ended an impasse over how to eliminate a $19 billion deficit to complete the state’s budget a record 100 days into the fiscal year. Amid stalemates in 2009 over comparable gaps, the state had to issue IOUs to pay bills until a spending agreement was reached.

To contact the reporter on this story: Michael Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Mark Schoifet at mschoifet@bloomberg.net

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