Two weeks after California enacted its 2008-2009 spending plan, turmoil in the financial markets and flagging tax revenues are forcing lawmakers and Gov. Arnold Schwarzenegger to reopen budget talks.
Capitol sources say a special session for new budget action is a serious possibility.
Legislative leaders and the Republican governor are scheduled to meet Wednesday to discuss options for dealing with the state's worsening financial picture. The state relies heavily on personal income tax and sales tax to generate revenues, and state officials fear both sources will be significantly weaker than predicted when crafting the recently signed budget.
At the same time, the state needs a $7 billion short-term loan to have enough cash until the spring, when tax revenues are heaviest. While state officials have more confidence that they can obtain the loan in the wake of a $700 billion federal bailout plan, they have not tested the credit market since Wall Street faltered in late September. State Treasurer Bill Lockyer plans to do so next week.
To deal with lower revenues, the sources said the governor could declare a budget-related special session as he did in January, bringing lawmakers back to consider another round of spending cuts, accounting maneuvers or tax increases to bridge the gap.
"It's likely that revenues will come in lower than expected," said Schwarzenegger spokesman Aaron McLear. "Obviously we're going to monitor the situation closely and be prepared for any scenario, and that's why he's meeting with the four leaders on Wednesday, so they can continue to work together to go over the revenues and make decisions on what's best."
Revenue indicators for September are discouraging so far. Paul Warren, revenue and tax coordinator for the nonpartisan Legislative Analyst's Office, said September personal income tax and corporate tax receipts are down more than 10 percent from projections. He said the month is a significant indicator because it is when quarterly tax filers make their estimated payments.
"I think what's been going on with the credit markets makes it more likely the numbers aren't going to get a lot better quickly," Warren said. "So it does seem like we're going to be revenue challenged. The revenues aren't going to come in the way we anticipated in April or May, so (a special session) would be a reasonable thing to do. Obviously, the earlier they come back, the more flexibility they have because as you spend money, you lose flexibility."
Call The Bee's Kevin Yamamura, (916) 326-5548
