http://www.google.com/hostednews/ap/article/ALeqM5jJ7uUDlO1sEo7K7bEfHpj4G7wuLQD99IJR503

Deal reached to close Calif's $26B budget deficit
By JUDY LIN (AP) – 19 hours ago

SACRAMENTO, Calif. — Gov. Arnold Schwarzenegger and California's legislative leaders agreed Monday on a plan to close the state's $26 billion budget shortfall, potentially getting the state back on firm financial ground so it can stop issuing IOUs.

The governor and leaders from both parties announced the compromise after more than five hours of closed-door talks. If the agreement survives its run through both houses of the Legislature, it would provide temporary relief to an epic fiscal crisis that has captured national attention, sunk the state's credit rating and forced deep cuts in education and social services.

Most analysts and top lawmakers expect that California will face multibillion dollar deficits into the foreseeable future as the economy struggles to recover and tax revenue lags far behind the level of the boom years.

On Monday, the focus was on balancing a state budget that had been thrown way out of whack by declining tax revenue since Schwarzenegger signed it in February during a rare emergency session of the Legislature.

Schwarzenegger and Republican lawmakers refused to raise taxes, limiting lawmakers' options. Democrats, meanwhile, had fought to preserve basic social services, including welfare, in-home support and health care for low-income children.

In the end, both sides said they had accomplished their goals under extraordinarily difficult circumstances.

"It was like a suspense movie," Schwarzenegger told reporters after emerging from his office shortly before 7 p.m. "Like I said, we have accomplished a lot."

The Republican governor described the compromise as a "basic agreement" to close the state's massive shortfall. The Democratic and Republican leaders of the Assembly and Senate were at his side.

Their plan will be distributed to rank-and-file lawmakers over the next day or two, with votes in the Legislature projected for Thursday. The budget requires a two-thirds vote in each house to pass, meaning all Democrats and a handful of Republicans must support it.

Democrats described the budget-balancing deal as one that protects the most vulnerable members of society.

"We have closed the deficit. ... We have protected the safety net," said Assembly Speaker Karen Bass, D-Los Angeles.

The four legislative leaders said they did not want to release extensive details of the compromise before they had briefed their party caucuses, but the governor's office said it includes $15 billion in cuts. Those reductions will come on top of an equal amount of spending cuts enacted in February.

The rest of the deficit will be made up by a combination of borrowing from local governments, shifting money from other government accounts and accelerating the collection of certain taxes.

A legislative source familiar with the negotiations, who was not identified because no one was authorized to release details of the agreement, told The Associated Press the cuts included $6 billion to K-12 schools and community colleges.

Cuts also outlines were $3 billion to the California State University and University of California systems, $1.2 billion to the state prison system and $1.3 billion to Medi-Cal, the state's health program for the poor, the source said.

Welfare, in-home support services and a health care program for low-income children also would suffer cuts but would not be eliminated as Schwarzenegger had originally proposed.

In exchange, the budget includes some of the reforms to social programs Schwarzenegger desired, including changing the duration that welfare recipients can receive benefits.

Schwarzenegger also succeeded in having a proposal to expand oil drilling off the Southern California coast included in the budget agreement.

Under that plan, drilling would be allowed from an existing rig off the Santa Barbara coast, generating about $1.8 billion in revenue over time. The proposal, opposed by many conservation groups, would be the state's first new offshore oil project in more than 40 years.

At least part of a Schwarzenegger plan to sell state assets, such as San Quentin State Prison and the Los Angeles Memorial Coliseum, was included, but it was unclear which ones. Some state parks also will have to close, but the vast majority of the 220 initially scheduled to be shut down will remain open.

Monday's announcement ends a little more than two weeks of intense negotiations that began shortly after the start of the fiscal year July 1, after the Legislature failed to pass interim steps that could have delayed the IOUs.

The state controller's office has been sending the pay-you-later warrants to thousands of state contractors and vendors that provide an array of state services. State finance officials hope a balanced budget will allow the state to obtain short-term loans to cover its daily expenses until most of the tax revenue arrives in the spring.

If it does get the loans, it would be able to stop sending IOUs, which have served as the most visible symbol of California's cash crisis and opened the state to ridicule. California last issued IOUs in 1992 and has done so only twice since the Great Depression.

"I am optimistic that when all the parts of this complicated deal are fully analyzed, understood and communicated to investors, California will be able to demonstrate we are fully capable of paying our short-term and long-term bills without interruption," Joe DeAnda, a spokesman for the state treasurer's office said in an e-mailed statement.

Hallye Jordan, spokeswoman for state Controller John Chiang, said it was not immediately clear how quickly the state would stop issuing IOUs. She said the office needed to see the details of the budget agreement to determine how it would benefit the state's cash flow in the weeks ahead.

Small business owner Gloria Freeman said the budget impasse has done so much damage that it will take California months to recover.

Her firm, Staff USA Inc., based 25 miles northeast of the state capital, provides medical staff on a temporary basis to state prisons, mental health and developmental centers and has been receiving IOUs. She has been forced to lay off five of her 55 administrative employees.

"It's taken them this long and it's had such a negative affect. It's like the reverse economic stimulus package for California," Freeman said.

The state's ability to function by issuing IOUs to contractors was projected to last until early September without a balanced budget in place. Payments to the state pension funds and paychecks to state workers would have been in jeopardy beyond that point.

Some 200,000 state government employees already have been ordered to take three days off a month without pay, the equivalent of a 14 percent pay cut. Those furloughs had been expected to continue through next June, shutting many government offices for three Fridays a month.

While California has been criticized for spending beyond its means, much of the current deficit can be traced to a steep economic downturn that has robbed the state of tax revenue.

Personal income fell this year in California for the first time in 70 years, leading to a 34 percent plunge in income tax revenue during the first half of the year.

The $26.3 billion shortfall amounts to roughly a quarter of the state's general fund, the account that pays for day-to-day state services. The sheer size of the deficit meant that any effort to balance the state's books would be felt throughout the state, from college students seeing a sharp increase in fees to local police and fire departments that face cuts as the state takes some $3.7 billion from city and county governments.

Paul McIntosh, executive director of the California State Association of Counties, called it the largest raid on local governments' coffers in state history.

"This is, of course, one of the most difficult economic times to face our state since the Great Depression, so none of these were easy choices," said Assembly Minority Leader Sam Blakeslee, R-San Luis Obispo. "I think we selected a path which will lead the state back to the point where we will be strong."


Yeah so basically, California is royally screwed.

i'm afraid we are. it's a VERY yucky mess, and i don't have much faith in legislaters and the governor to solve this problem.

That really sums up your post perfectly, I love your avatar by the way :3

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Oh its not as bad as it seems, it’s not like this nation doesn’t already go though periodic cycles of booms (bubbles) and busts.

California’s budget problems can essentially be reduced to people demanding more and better quality public services (education, roads, welfare, Medicaid/care, whatever) without wanting to raise taxes to pay for all of it. You can’t keep pulling these things out of your ass forever, what did they expect was going to happen? Free stuff? No strings attached? If you want quality public services you have to *gasp* pay taxes!!! But we can’t have that, the public would be outraged … this is America damnit, the land of deferred responsibility.

If you’ve got a lot of time on your hands and feel up to it, I recommend this article about the nature of the American financial system.

...I like you, Odrom :3

We seem to have have similar viewpoints. (Not just in this, but in that philosophical thread, too... I think.)

(Although one of us can express said viewpoints much more clearly and eloquently than the other. )

edit: darn my grammar-nazism


EDIT: AH HA! As of this post, my post count is 2 raised to successive powers in U5!!!

...darn my math nerdiness

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Putting that part about offshore drilling in it has allready killed it. The enviromental loonies will throw every kind of a block they can in front of it.

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Quote 1: This is the worst North America has seen since the Great Depression. All the other boom and bust cycles between the main two haven't caused anything like this.

Quote 2: California would have the money to improve on public services had it not been for the illegal Hispanic immigrants. http://usgovinfo.about.com/od/immigrationnaturalizatio/a/caillegals.htm. Now they're in $26 Billion debt and the illegal immigrants cause the Government of California to spend $10.5 Billion a year. Work that out and that's more than the current debt. Your logic fails against mine.

this isn't necessarily the worst since the great depression. that's just what obama likes to spew out to create a state of emergency where they can depend on him and the government. the boom and bust cycles have created more worse situations.

i don't know enough about the illegal immigrant topic to make a comment about it.

Sort of Kind Of what L_J said. It's not as bad as it's made out to be. Trust me. Let me throw down some elementary Economics.

Economies go through four possible stages an infinite amount of times, a large amount of the time, they will go through three only. The cycle is commonly referred to as a Business Cycle, it functions as follows: Prosperity, Recession, (If it gets bad enough, then Depression), and Recovery.

We are currently in a recession, things have been getting bad since early 2007, and hit an all time low that we hadn't seen in a very long time in mid-2008 (Interestingly enough, it was soon after the majority in the houses were changed, I'll let you be the judge if there's a correlation). People have exaggerated the state of turmoil we are in. But we still are doing well. There have been a few signs hinting towards the start of a Recovery. Sure things may be bad, but it's nowhere near the rough times we had in the Great Depression. We're not likely to hit a depression from this either, as to the many safeguards that were implemented in the years that followed the Great Depression.

Another thing I find interesting, is that California has been many times referenced to as the testing grounds for liberal policies. And now they're $26 Billion in debt. Other factors contributed to this without a doubt, but just some food for thought.

(Business Foundations, one of my better class choices.)

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First of all, making a straw man is not conducive to logical reasoning. And second of all, I really hope you’re not implying that the typical xenophobic rhetoric is the real cause of California’s current crisis.

I’m aware that I’m guilty of finger pointing as well. Yes, what I posted earlier was a massive and sarcastic oversimplification, but in my defense, explaining it in detail would require a large, multi-page post (which is what this is going to be). If the previous philosophy thread is any indication, nobody really wants to read those—I’d just be typing to myself.

Anyway,
Like any real-world problem worthy of mention, with the budget crisis there is no single overarching cause and easy solutions. The problem is multi-fold, owing itself to a combination of the national & global economic recession, reckless state budget planning and an ineffectual, slow-as-hell state government. I’m sure that illegal immigration plays a role in the mess but to point it out as the root cause is awfully ignorant. The immigration issue is a whole ‘nother can of worms—its an exceedingly complex subject with implications that reach far beyond finances at the state level. The government can’t and won’t resolve it in time to have any effect on the current situation. I’ll mention more about this topic later.

What California’s government can do however, is help clean up the fiscal mess they brought upon themselves. In a nutshell, what happened is best summarized in this quote: “Recession triggered the crisis but did not cause it. California relies heavily on income taxes, especially those paid by the top 1% of earners. These veer up and down with the markets. But instead of saving money in boom years, the state locks in higher spending on public services and embarks on projects that need long-term investment. Dave Cogdill, head of the Republicans in the state Senate, likens it to a family that adopts children in good times, only to find that it cannot afford to feed them when the economy sours.” Risky investment strategies are fine if you’re an investment banker, not so if you’re a government agency. Even if illegal immigration were magically dealt with, the state would still be in a financial mess due to their own actions. The extra $10billion or so would just of been recklessly invested elsewhere.

As of now the state legislature is butting heads with one another in order to find a way to close the gap. Things wouldn’t be that bad if only they would just get their shit together. Unfortunate as it is, programs have to be downsized, some cut altogether. However, state Republicans and Democrats just cant seem to agree on where to cut back and who to cut off, nor can they come to a consensus on where to find additional funding. Debates rage on about taxation and the possibility of legalizing marijuana. Despite both parties having a role in creating the mess, everyone wants to look out for their own interests, the problem is, with a crisis of this magnitude all that results is infuriating partisan bickering. I lost count the times the budget deadline has passed. Even if the budget were balanced, it still wouldn’t be the magic bullet that puts a stop to this debacle--the national economy is still in tatters. As I mentioned before, the problem is multifaceted, the state still has to contend with some of its own legislation that puts a damper on any progress (see Proposition 13). Still, passing this particular hurdle would be a step in the right direction.

About illegal immigration:
What can I say, it’s a hotly debated political topic: the kind of stuff they put on presidential candidate platforms. If you want to delve further into it, by all means do so; just be weary of derailing the thread. For now I’ll throw out the following: Ok, the entire nation, not just California, has to tackle the issue. Among other things, aliens soaking up public funds are a legitimate concern among taxpayers, the thing is, how exactly do we go about addressing it? Blacklist, round up and deport the illegals? Not only are the financial and logistical costs unfeasible but also there are obvious ethical issues to contend with. What about families that have children in the US? Splitting them up or deporting your own citizens aren’t considered acceptable answers. Not to mention that dumping immigrants en masse back to their home countries without any support infrastructure is pretty much a death sentence. Great, instead of a financial crisis, we now have a humanitarian one as well. I’m sure after Iraq and Gitmo we need more of those. What about tighter border control? Again, costs and logistics. This isn’t like Starcraft where you can wall up the choke point and be done with it. Never underestimate the determination and ingenuity of desperate people … are we to give our border agents the right to shoot to kill? I’m sure that’ll go over well …

This brings us to the core of the issue, why exactly are people rushing into the country by illegal means in the first place? As far as the southern border goes, most individuals cross seeking a better socio-economic situation and/or to escape the ever-growing violence between drug cartels and government forces. Illegal immigrants are willing to work crappy jobs at rates no one else will—its far better than anything they can muster up back home. Are we to blame the workers or the companies that exploit their labor to keep operation costs down? I guess no ones ever head of corporate responsibility. A lot of people complain about illegals taking their jobs, well, are you willing to pick tomatoes for minimum wage and no benefits? Didn’t think so. The bottom line is, the only people who benefit from this labor setup are corporate big shots, some of who were responsible for the financial meltdown we’re currently undergoing. Also consider the following: some of our own trade agreements and dubious corporate policies are a factor in the poor economic status of Central America. And the drug cartels wouldn’t have any business if it weren’t for the insatiable appetite the US has for narcotics. This is not a simple problem and it doesn’t have a simple solution.

In reply to your comment about the Rolling Stone article (which was removed?)
Eh, fair enough, just remember that any publicized media institution has a degree of bias built into it, the big three, CNN, MSNBC and FOX are no better than anyone else. Be wary of taking things for its face value; always follow up with additional sources and research. Rolling Stone magazine may be an odd place to find political commentary, but I pointed out the article in question because it provided a neat summary of our nations economic woes. Filled with slant and bias? Sure is, but find me an article on the issue that isn’t.

Reference articles:
http://www.economist.com/world/unitedst ... d=12903483
http://www.washingtonpost.com/wp-dyn/co ... 02457.html