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California faces $19 billion budget deficit despite massive cuts

The California budget deficit stands a $19.1 billion, even after two years of steep cuts. Democrats oppose Governor Schwarzenegger's proposed cuts but can't agree on a solution.

By Daniel B. WoodStaff writer / June 22, 2010

Countywide Services Agency Administrator Bruce Wagstaff addresses the Sacramento Board of Supervisors as part of budget hearings on June 15.

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California has come face to face with its annual budget dance.

This year's cover charge is $19.1 billion in needed cuts, and all parties are still huddled in the corner trying to decide if the music will be foxtrot, two-step, shimmy, or sway. The state controller is tapping his foot with one eye on the clock – July 1 – after which the state could eventually turn off the lights, or issue IOUs, as it has done in the past.

Democrats have two plans – one to borrow billions and the other to raise taxes and shift some programs to counties. Senate Democrats unveiled their plan on Monday to give counties greater control of state programs – predicting a $3 billion to $4 billion savings in the budget gap. The state would approve a tax on oil production, permanently extend the state’s higher vehicle license rate fee, and delay corporate tax breaks. It would also give counties greater authority to seek local tax hikes from voters.

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Even the two Democratic plans “appear to be very far apart,” says Dan Walters, the leading political writer in the state.

“The two Democratic versions of the budget are very much at odds, even if they both agree on rejecting Gov. Arnold Schwarzenegger's slash-and-burn approach.... It's a three-way stalemate,” he wrote in his Sacramento Bee column on Tuesday. “Nothing will happen until Democrats in both houses are in sync on whether to borrow or tax their way out of this year’s version of the chronic deficit.”

Governor Schwarzenegger’s solution includes massive – and unpopular – program and budget cuts, and he backs state Republicans who have vowed to give no ear to any taxes. Analysts say that Schwarzenegger does not want to leave office on a down note, but that he may have no choice in this matter at the moment.

"It has been a California tradition that lame duck governors leave huge deficits for their successors to deal with,” says Robert Stern, President of the Los Angeles-based Center for Governmental Studies (CGS). “Will Schwarzenegger carry on this tradition or will he provide bold leadership and bite the bullet? Will the Republican legislators go along with him? My bet is that everyone in Sacramento will punt until next year when the economy is expected to improve," he says.

One good sign, says Jack Kyser, president of the Los Angeles Economic Development Council, is that state economic fortunes are projected to turn around soon.

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