California budget 'emergency': bid to recoup $6 billion in pensions

The annual California budget crisis led Gov. Arnold Schwarzenegger to declare a 'state of emergency' Wednesday. But the declaration is really a ploy to pressure unions, experts say.

By , Staff writer

Gov. Arnold Schwarzenegger declared a state of emergency over California’s finances Wednesday and ordered three days off without pay per month for tens of thousands of state employees.

The tactic is being seen less as a move to preserve cash than to pressure state legislators to negotiate a state budget that is more than a month overdue and needs to close a $19 billion gap.

"Without a budget in place that addresses our $19 billion budget deficit, every day of delay brings California closer to a fiscal meltdown," Governor Schwarzenegger said in a statement. "Our cash situation leaves me no choice but to once again furlough state workers until the legislature produces a budget I can sign," he wrote.

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Schwarzenegger's declaration noted the state's government is projected to run out of cash no later than October should its budget stalemate persist as expected.

But analysts call the emergency declaration a political pressure tactic.

“The furlough idea is a tactic to try to get the unions to negotiate more favorable contracts,” says Tony Quinn, a former GOP legislative aide and co-editor of California Target Book. He says the very generous pensions handed out under previous Gov. Gray Davis are costing the state $6 billion annually.

“These contracts were decided back when no one ever thought the housing prices or stock market would drop and are now costing the state enormous sums of money," he says. "Schwarzenegger is trying to get these people to go along with whatever leverage he has.”

The move puts pressure on both parties, says Barbara O'Connor, director emeritus of the Institute for Study of Politics and Media at California State University, Sacramento.

“It creates enormous pressure for the Democrats to finally come to the table with a consensus proposal,” she says. Right now, she says, they are floating one idea in the state Assembly and a different one in the Senate. “This move creates havoc, and out of havoc usually comes forced consensus,” says Ms. O’Connor.

Meanwhile, the governor is at an economic summit in San Diego with business leaders who are getting close to wanting to be out campaigning for fall elections. A Field Poll released Thursday shows Attorney General Jerry Brown and Sen. Barbara Boxer with narrow leads for governor and US Senate respectively, but also shows a large number of undecided voters.

“There are a ton of undecideds out there and so there will be lots of unhappy campers out there on the campaign trail if we don’t have a state budget,” says O’Connor.

Besides political consequences, there are fiscal drawbacks to the state's instability as well.

“These yearly crises are a significant negative for California’s ability to compete for entrepreneurs and talent," says Stephen Levy, Director and Senior Economist of the Center for Continuing Study of the California Economy in Palo Alto. "As the years drag on, more and more people think of California as the state that can’t or won’t get its act together,” he says.

The worrisome state of California's finances extends beyond business, says Jack Kyser, Chief Economic Advisor at the Southern California Association of Governments. “People are concerned about the long-term impact on California … on education, especially the University of California," and on transportation and other infrastructure spending, he says.

There is talk among analysts that there may be no state budget until Schwarzenegger leaves office in January. But one silver lining could be that voters might evaluate the wisdom of California’s high requirement to pass a budget – two-thirds of the legislature. And if they are angry at legislators, things could change.

“This requirement may be reduced to a simple majority if Prop. 25 passes in November,” notes Robert Stern, president of the Center for Governmental Studies. “Polls show [Prop. 25] has 60 percent support because it contains a provision that forfeits all legislative pay forever during the time the budget is overdue.”

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