However, California is facing a $26.3 billion budget deficit for the 2009–2010 budget year. While the legislative bodies appeared to address the problem in 2008 with the three-month delayed passage of a budget they in fact only postponed the deficit to 2009 and due to the late 2008 decline in the economy and the credit crisis the problem became urgent in November 2008.
One potential problem is that a substantial portion of the state's income comes from income taxes on a small proportion of wealthy citizens. For example, it is estimated that in 2004 the richest 3% of state taxpayers (those with tax returns showing over 200K USD yearly income) paid approximately 60% of state income taxes.[84] The taxable income of this population is highly dependent upon capital gains, which has been severely impacted by the stock market declines of this period. The governor has proposed a combination of extensive program cuts and tax increases to address this problem, but owing to longstanding problems in the legislature these proposals are likely to be difficult to pass as legislation.
State spending increased from $56 billion in 1998 to $131 billion in 2008, and the state was facing a budget deficit of $40 billion in 2008. California is facing another budget gap for 2010, with $72 billion in debt.
In 2009 the California economic crisis became severe as the state faced insolvency. In June 2009 Gov. Arnold Schwarzenegger said "Our wallet is empty, our bank is closed and our credit is dried up." He called for massive budget cuts of $24 billion, about 1⁄4 of the state's budget.
2008–10 California budget crisi
The U.S. state of California had, and still currently does have, a budget crisis in which it faced a shortfall of at least $11.2 billion, projected to top $40 billion over the 2009–2010 fiscal years.
2008
On September 23, 2008, about 3 months after its due date, Governor Arnold Schwarzenegger signed the 2008-2009 budget. Worsening financial conditions that followed left the state with a large shortfall.
A two-thirds vote is required to pass a budget, and in both the original budget negotiations and in the attempt to revise the budget no political party by itself had enough votes to pass a budget. The majority Democrats fought to minimize cuts to programs, while most of the minority Republicans refused to accept any tax increase. The original budget was put together by Democrats and some Republicans using spending cuts, internal borrowing, and accounting maneuvers.
In November 2008, Schwarzenegger proposed spending reductions including the following measures concerning state employees:
One furlough day per month, equivalent to a reduction in pay of about 5 percent.
Elimination of the Columbus Day and Lincoln's Birthday holidays.
Employees who must work on holidays would receive holiday credit for later use, as opposed to receiving time-and-a-half pay.
Employees would more easily be able to work four ten-hour days per week.
Overtime pay rules would be changed so that leave time would no longer be considered as part of time worked.
In December 2008, Schwarzenegger ordered mandatory furloughs of two days per month for state employees, as well as "layoffs, reductions and other efficiencies" to achieve savings in the General Fund of up to 10%.
2009
Labor organizations filed lawsuits and took other actions in an attempt to stop the furloughs of state workers.[8] On Jan. 29, 2009, a Superior Court Judge ruled that Schwarzenegger had emergency furlough power, and on February the 3rd District Court of Appeal in Sacramento said the appeal to the decision came too late and was incomplete, so judges were unable to determine if a halt to state furloughs is legally justified. As part of the furlough, various state offices were closed on the 1st and 3rd Fridays of every month from February 1, 2009 through June 30, 2010, which was estimated to save the State $1.3 billion.
By February 2009 California State Controller John Chiang delayed $3.5 billion in state payments (such as state tax refunds) for at least 30 days because the state was experiencing cash flow difficulties.
The state legislature passed a budget in February 2009 that depended on the voters approving tax extensions and money redirection into the general fund, which in May the voters did not approve. Governor Arnold Schwarzenegger then proposed $16 billion in cuts and also borrowing money from local governments. In the legislature, the Republicans agreed to lower the income of state employees, but the Democrats resisted these proposals and suggested increasing fees to be paid by smokers and oil wells. Neither party agreed to borrowing money from local governments.
On April 1, 2009, the state sales and use tax was temporarily increased by one percentage point.
The state had been selling bank-guaranteed short-term notes to get cash, but in June 2009 its credit rating was lowered. When the state asked for a federal guarantee of the notes, the Obama administration said it had no legal authority to back state notes and that the state should solve its own problems.
On July 1, 2009, Schwarzenegger ordered state workers to take a third furlough day each month. On July 2, 2009, the state government began issuing IOUs to meet its short term financial obligations.Five days later, Bank of America, Citigroup, Wells Fargo, and JP Morgan Chase announced that they would stop accepting IOUs by July 10. Fitch Ratings dropped California's bond rating from A-minus to BBB.
On July 24, 2009, the state government passed a budget that included $15 billion in service cuts, including $8.1 billion in education cuts. Eliminated from the final plan included proposals to borrow money from city and county governments and to drill for oil off the coast of Santa Barbara. Chiang announced in August 2009 that the IOU program would end the next month and that California would pay off 327,000 IOUs worth almost $2 billion.
The budget crisis led to cutbacks and many layoffs at state universities in California. In order to curb the budget shortfalls, the California Board of Regents voted on a 32% raise in all tuition costs for state universities. This led to the 2009 California college tuition hike protests.
Causes of budget deficit
A major source of the deficit has been the continuous growth in salaries and benefits of state employees during economic boom times, some of which were lobbied by trade unions. In 2009 more than 134,000 Bay Area public employees were reported by the Contra Costa Times to have earned annual base salaries in excess of $100,000; however, many of these employees were local employees, not state employees. A database of public employee salaries was also made available by San Jose Mercury News. As per the same source over 40,000 public employees in the Bay Area alone earned over $200,000 in 2009.
In 2008 the daily news also reported six figure salaries of many public officials in LA . The Sacramento Bee maintains an updated database of state worker salaries.
Required legislative supermajorities
News reports and commentators have cited the state's various legislative supermajority requirements as a contributing factor to the state budget crisis.The state has a long history of supermajority requirements with a 1933 state ballot measure mandating a two-thirds supermajority to pass the state budget and California Proposition 13 (1978) mandating another two-thirds supermajority to pass tax increases. The National Conference of State Legislatures (NCSL) notes that, as of 2008, only 9 states require a supermajority to pass the state budget and of those 9, only 3 (California, Arkansas, and Rhode Island) require a two-thirds supermajority instead of the three-fifths supermajority to pass the state budget. The NCSL also notes that, as of 2008, 15 states require a supermajority to raise taxes and that California is among the 10 of those 15 that require more than a three-fifths supermajority (i.e., a 2/3 or 3/4 supermajority).
Additionally, NCSL data shows that California is one of the only two states that requires a supermajority to pass both tax increases and the state budget.California also has the stricter two-thirds supermajority requirement instead of the more common three-fifths supermajority requirement for both the budget and tax increases.
Reforms
Proponents of ending the state's supermajority requirements note that "Since 1980, the California State Legislature has met the June 15 constitutional deadline for sending a budget to the governor only five times (of thirty budget periods). Only ten times has the brokering been done by the July 1 start of the fiscal year." They have sponsored California Proposition 25 (2010), a ballot initiative that changes legislative vote requirements to pass a budget and tax increases from two-thirds to a simple majority (50% + 1). On June 24, 2010 the California Secretary of State reported that the measure qualified for the ballot and will appear on the state's November, 2010 general election ballot.
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