California Lawmakers, Schwarzenegger Strike Deal Over $26 Billion Deficit

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Arnold Schwarzenegger, governor of California, speaks at a news conference in Sacramento, California, July 1, 2009. Photographer: Ken James/Bloomberg News

July 21 (Bloomberg) — California lawmakers reached an agreement with Governor Arnold Schwarzenegger over how to close a $26 billion budget deficit that pushed the most-populous U.S. state to the brink of insolvency.

The deal, reached by legislative leaders after two months of frequently acrimonious negotiations, would slash spending for schools, public works and welfare programs amid the longest recession since the 1930s. If approved by the full Senate and Assembly, the agreement will also siphon money from municipalities, force companies and individuals to pay income taxes sooner and make it more difficult to receive state aid.

“We came to a basic agreement, a budget agreement,” Schwarzenegger told reporters outside his office last evening. “This is a budget that has no tax increases and this is a budget that is cutting spending and it deals with the entire $26 billion deficit.”

Read moreCalifornia Lawmakers, Schwarzenegger Strike Deal Over $26 Billion Deficit

The Biggest US Banks Don’t Want California’s IOUs

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A group of the biggest U.S. banks said they would stop accepting California’s IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap.

The development is the latest twist in California’s struggle to deal with the effects of the recession. After state leaders failed to agree on budget solutions last week, California began issuing IOUs — or “individual registered warrants” — to hundreds of thousands of creditors. State Controller John Chiang said that without IOUs, California would run out of cash by July’s end.

But now, if California continues to issue the IOUs, creditors will be forced to hold on to them until they mature on Oct. 2, or find other banks to honor them. When the IOUs mature, holders will be paid back directly by the state at an annual 3.75% interest rate. Some banks might also work with creditors to come up with an interim solution, such as extending them a line of credit, said Beth Mills, a California Bankers Association spokeswoman.

Meanwhile, on Monday morning, a budget meeting between Gov. Arnold Schwarzenegger and legislative leaders failed to produce a result. Amid the budget deadlock, Fitch Ratings on Monday dropped California’s bond rating to BBB, down from A minus, the latest in a series of ratings downgrades for the state.

The group of banks included Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others. The banks had previously committed to accepting state IOUs as payment. California plans to issue more than $3 billion of IOUs in July.

Read moreThe Biggest US Banks Don’t Want California’s IOUs

Schwarzenegger declares fiscal emergency; California issues IOUs

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California is inventing its own currency

AFTER weeks of trying to fix California’s budget, Governor Arnold Schwarzenegger and state legislators have fought one another to a standstill.

A day after the state Senate failed in a late-night bid to close part of a deficit now projected at $US26.3 billion ($A32.6 billion), California Controller John Chiang took steps to begin issuing IOUs to tens of thousands of companies and individuals owed millions of dollars by the state.

Mr Schwarzenegger declared a fiscal emergency, ordering state workers to take a third unpaid day off each month.

A meeting between Mr Schwarzenegger and the state’s top four legislative leaders ended abruptly within half an hour. Assembly Speaker Karen Bass, a Democrat from Los Angeles, charged out of the Governor’s office, clearly distraught, and walked briskly down the hall.

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Schwarzenegger to shut state offices to save money (Sydney Morning Herald)
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“He broke it. He should fix it,” Ms Bass said tersely, alluding to Mr Schwarzenegger’s refusal to accept a budget deal that would have averted IOUs but not closed the entire deficit. “Nothing more to say.”

Read moreSchwarzenegger declares fiscal emergency; California issues IOUs

Governor Arnold Schwarzenegger’s Last Stand: His Way or IOUs

California is on track to run out of cash by the end of July.

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Gov. Arnold Schwarzenegger tells reporters that he is resolute about state fiscal reforms. Schwarzenegger’s high-stakes strategy could close the budget abyss or cause a meltdown of state government.
(AP)

Reporting from Sacramento — Gov. Arnold Schwarzenegger, seeking to conquer what could be the last budget crisis of his tenure, is engaged in a high-stakes negotiating strategy with lawmakers that could force him to preside over a meltdown of state government.

As legislators have scrambled to stop the state from postponing payment of its bills and issuing IOUs starting next week, the governor has vowed to veto any measure that fails to close the state’s entire $24-billion deficit.

In doing so, Schwarzenegger has sent the message that he would rather allow the state to begin shutting down than let lawmakers push its troubles off for months by closing only part of the shortfall. The latter prospect could swallow up the rest of his governorship.

“Whatever needs to be done,” Schwarzenegger told reporters outside his Capitol office Friday when asked why he would be willing to delay payments to needy Californians. “I know that there is a history in this building of always being late with the budget, to drag it out and to kick that can down the alley. . . . I don’t think we have this luxury this time.”

Read moreGovernor Arnold Schwarzenegger’s Last Stand: His Way or IOUs

Budget Crisis: States Turning to Last Resorts

“Our wallet is empty, our bank is closed and our credit is dried up.” (Governor Arnold Schwarzenegger)


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Gov. Arnold Schwarzenegger saying this month that he would veto any budget bill that included new taxes beyond what he had proposed.

In Hawaii, state employees are bracing for furloughs of three days a month over the next two years, the equivalent of a 14 percent pay cut. In Idaho, lawmakers reduced aid to public schools for the first time in recent memory, forcing pay cuts for teachers.

And in California, where a $24 billion deficit for the coming fiscal year is the nation’s worst, Gov. Arnold Schwarzenegger has proposed releasing thousands of prisoners early and closing more than 200 state parks.

Meanwhile, Maine is adding a tax on candy, Wisconsin on oil companies, and Kentucky on alcohol and cellphone ring tones.

With state revenues in a free fall and the economy choked by the worst recession in 60 years, governors and legislatures are approving program cuts, layoffs and, to a smaller degree, tax increases that were previously unthinkable.

All but four states must have new budgets in place less than two weeks from now — by July 1, the start of their fiscal year. But most are already predicting shortfalls as tax collections shrink, unemployment rises and the stock market remains in turmoil.

“These are some of the worst numbers we have ever seen,” said Scott D. Pattison, executive director of the National Association of State Budget Officers, adding that the federal stimulus money that began flowing this spring was the only thing preventing widespread paralysis, particularly in the areas of education and health care. “If we didn’t have those funds, I think we’d have an incredible number of states just really unsure of how they were going to get a new budget out.”

Read moreBudget Crisis: States Turning to Last Resorts

California’s credit rating may be cut several levels: Moody’s

June 19 (Bloomberg) — California’s credit rating, already the lowest among U.S. states, may be cut several levels by Moody’s Investors Service as government leaders seek ways to eliminate a $24 billion budget deficit.

The move would affect $72 billion of debt, Moody’s said in a statement today. California’s full faith and credit pledge is rated A2 by Moody’s, five steps above high-yield, high-risk status, or junk.

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California nears financial meltdown as revenues tumble

A downgrade may increase the state’s borrowing cost and raise the yield paid to investors on its bonds. Standard & Poor’s put California on watch for a possible reduction earlier this week, and Fitch Ratings did the same thing May 29. The rating companies cited the most-populous state’s deficit — amounting to more than 20 percent of the general fund — and lawmakers’ inability to agree on how to close the gap.

“If the Legislature does not take action quickly, the state’s cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July,” Moody’s said in a report today. “Lack of action could result in a multi-notch downgrade.”

Read moreCalifornia’s credit rating may be cut several levels: Moody’s

Judgment Day: Broke California Faces Shutdown

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California’s famed redwood forests will have to close to visitors

The state of California is in crisis and time has almost run out. Arnold Schwarzenegger, the Governor, has spent this week haggling with state legislators to agree cuts to basic services in one of the world’s largest economies.

The state’s top finance officials warned that unless an emergency austerity plan is agreed by Monday – and there is little chance that it will be – they will not be able to borrow the billions of dollars needed to keep the current government functioning. If California was a company, it would have gone bust months ago.

The breadth and depth of Mr Schwarzenegger’s cuts are unprecedented and no one in the state, not even its dozens of billionaires, will be unaffected. His more radical proposals include wiping billions of dollars from the education budget, with the school year shortened and larger classes.

Hundreds, possibly thousands, of police and firemen will be laid off, and state employees who keep their jobs face pay cuts of at least 10 per cent.

Parks will close, shutting access to thousands of square miles of beaches, redwood forest and other attractions that draw 80 million visitors a year. Thousands of prisoners will be released early and the notorious St Quentin penitentiary will be among state buildings put up for sale.

All financial aid for university students, affecting 200,000 people from low-income families, will end.

Local governments will no longer have to provide absentee ballots in elections, nor run programmes to help infants exposed to drugs. Even stray animals will no longer be kept alive for the statutory three days.

Read moreJudgment Day: Broke California Faces Shutdown

California nears financial meltdown as revenues tumble

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The skyline of downtown Los Angeles is pictured at sunset (Reuters)

SAN FRANCISCO (Reuters) – California’s government risks a financial “meltdown” within 50 days in light of its weakening May revenues unless Governor Arnold Schwarzenegger and lawmakers quickly plug a $24.3 billion budget gap, the state’s controller said on Wednesday.

Underscoring the severity of California’s cash crisis, Controller John Chiang, who has previously warned the state’s government risks running out of cash without a budget deal, said revenues in May fell by $1.14 billon, or 17.7 percent, from a year earlier.

Additionally, the revenues of the government of the most populous U.S. state fell short of estimates in Schwarzenegger’s budget plan by $827 million, Chiang said.

He warned California’s state government is speeding toward a financial disaster unless officials act urgently to balance its books.

“Without immediate solutions from the governor and legislature, we are less than 50 days away from a meltdown of state government,” Chiang said in a statement.

California’s revenues have been on a dramatic slide as a result of recession, rising unemployment and its lengthy housing downturn.

The state’s revenues from personal income taxes tumbled by 39.3 percent in May from a year earlier while revenues from corporate taxes fell by 52.1 percent and revenues from sales taxes sagged by 7.6 percent, according to a report released by Chiang’s office.

Read moreCalifornia nears financial meltdown as revenues tumble

California’s day of reckoning is a warning for Europe

California ‘IS’ broke and the US ‘IS’ broke too.


California is the salad bowl in which the world serves up its more exotic lifestyle experiments. Mix sunshine with self-indulgence and dress it with surf-wear and you get a glimpse of how we might live in the future – if we could only afford the plastic surgery.

Unfortunately, it appears that even Californians can no longer afford the lifestyle of the Valley Girl.

The Golden State is almost bust, but its inhabitants, even if they believe it, do not want to know and they certainly do not want to pay for it. The state has been running huge budget deficits for years; the till in Sacramento, the state capital, is now empty and the last-ditch attempt by Arnold Schwarzenegger, the Governor, to balance the books with a series of tax increases and budgetary shuffles was roundly rejected by voters in referendums a week ago.

With a $21 billion (£13 billion) deficit and the lowest credit rating of any American state, the choices are few and grim. California cannot hope to borrow such large sums, except at extortionate rates, which leaves the option of massive cuts in public spending – the sacking of thousands of teachers.

California could run out of cash in a few months. Mr Schwarzenegger has already warned that 5,000 state employees face being fired. The state education budget is in line for a $5 billion cut, alongside the end of funding for parks and the closure of at least one state agency.

Read moreCalifornia’s day of reckoning is a warning for Europe

California Teachers Rally as 26,000 Job Cuts Loom

March 13 (Bloomberg) — California teachers organized protests in more than a dozen cities today as about 26,000 may lose their jobs because of spending cuts the Legislature approved last month to keep the state from running out of money.

School districts across the most-populous U.S. state have been warning thousands of teachers that they may be fired as a result of California’s declining tax collections. The plan signed by Governor Arnold Schwarzenegger last month cut $8.4 billion from schools and community colleges out of $15 billion trimmed from state spending through June 2010.

“These cuts are going to hurt an entire generation of children and damage California’s public education system for years to come,” David Sanchez, president of the California Teachers Association union, said in a statement.

Read moreCalifornia Teachers Rally as 26,000 Job Cuts Loom