GOVERNOR SAYS STATE’S BUDGET CRISIS HAS GOTTEN WORSE

Shirley Jahad | KPCC 89.3 Public Radio News

December 11, 2008

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Governor Schwarzenegger stood underneath a doomsday style clock yesterday to describe the state budget crisis. He said, as the seconds tick by, the state's budget deficit deepens. It's now nearly $15 billion in the hole. And the deficit grows by $2 billion a month. The governor describes it as a "financial Armageddon." KPCC's Shirley Jahad talked with the Sacramento Bee's Dan Walters about the governor's dark words.

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Dan Walters: Well, the governor's obviously trying to put pressure on the legislature, and so he's using kind of apocalyptic language to describe the situation.

Which is probably warranted; the deficit in total for the remaining six months of this fiscal year and all of next fiscal year is in the $40 billion-plus range. I mean, this thing is starting to get to be a monster so big that nobody can get their arms around it.

Shirley Jahad: So what are the options on the table at this point?

Walters: Well, the options are the same they've been there for the last 30 years, and that's to raise taxes, cut spending, some combination thereof, or go try to borrow some more money. And the options don't go away.

Maybe borrowing money's gone away, because I don't think anybody'd lend them any money. The state's credit rating's in the toilet. All the financial officers of the state say they can't go out and borrow any more money now.

Jahad: Well, the governor calling the big five to a meeting, the governor saying lawmakers should work through the holidays, but what kind of confidence should taxpayers have that anything will actually get done, given the past history?

Walters: I actually think that they will do something, probably my guess is after the governor kind of announces his new budget proposal on January 10th. Sometime between then and maybe the end of January, because they're going to shut down at the end of February without some injection of cash.

So they know they have to borrow, the question is can they ever pay it back, and that would depend on having some sort of a deal on taxes and spending cuts that would make Wall Street treat them something other than a third world nation.

Jahad: You've described it as a costly game of chicken.

Walters: What's happening, Democrats leave, they hold out long enough, Republicans will blink and raise taxes. The Republican believe if they hold out long enough, the Democrats will blink and give them some of the things they want, some business law changes, in return for the taxes.

Taxes are gonna be there, I have no doubt. The question is, under what set of circumstances? So we are in a game of chicken, we are waiting, who's going to blink.

Jahad: It seems the Republican lawmakers, as you say, are not agreeing to proposed solutions that involve boosting revenue, so tell us more about what the Republicans are proposing that can actually realistically handle this.

Walters: Well, they're not. They're not proposing – they're not saying, you know, really you have to kind of read between the lines a little bit. They're not saying "We won't vote for taxes." What they're really saying is "We won't vote for taxes unless you agree to do some other things."

And there will probably be taxes they can provide some political cover on by claiming they're not really taxes, like increasing the vehicle license fee, which is really a property tax, or maybe a temporary sales tax. The governor's proposed that.

Or maybe a freeze on the indexing of income tax brackets to inflation, which is something the Democrats have proposed. Some combination thereof. And then whack schools, and prisons, health care for the poor, and probably welfare, and colleges, to get the budget somewhat in balance.