2008–12 California budget crisis

Furlough at a California Department of Motor Vehicles office in 2009

The U.S. state of California is suffering from an ongoing fiscal crisis in which it faces a budget shortfall of at least $11.2 billion, projected to top $40 billion over the 2009–2010 fiscal years.

The state had been selling bank-guaranteed short-term notes to get cash, but in 2009 its credit rating got lower. 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. 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.

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. For example, the Columbus Day holiday for state employees would be eliminated. The state would no longer pay double time-and-a-half to employees working on holidays. Departments would allow employees to work a ten-hour work day, four days a week, and California would no longer pay overtime for leave time worked.

2009

Gov. Schwarzenegger ordered mandatory furloughs for state employees. As part of the furlough, various state offices are closed on the 1st and 3rd Fridays of every month from February 1, 2009 through June 30, 2010, and are estimated to save the State $1.3 billion dollars.

On Jan. 29, 2009, a Superior Court Judge ruled that Gov. Arnold Schwarzenegger has 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.

In addition to the furloughs, the governor initiated other layoffs, reductions and efficiencies to achieve savings of up to 10 percent.

On April 1, 2009 the state sales and use tax was temporarily increased by one percentage point. Other state response to the crisis has included mandatory state employee furloughs and the delay of state tax refund payments.

Breakdown of Governor Schwarzenegger’s plan Jan 2009 - Jun 2011

Governor Arnold Schwarzenegger’s plan to close this budget deficit over 18 months was to obtain $14.8 billion in state revenue from the following:

• $9.5 billion by raising the sales tax by 1.5 cents on the dollar for three years
• $1.4 billion by imposing sales taxes on some services and activities that currently aren't taxed such as golf fees, amusement parks, sporting events, veterinary treatment and vehicle repair
• $1.4 billion by reducing the income tax credit for dependents to the level of personal credits in 2009 tax year - from $309 per dependent to $99
• $1.2 billion by imposing a 9.9 percent per barrel tax on oil extracted from California
• $829 million by raising the excise tax on alcohol by 5 cents a drink
• $451 million by raising annual vehicle registration fees by $12 per vehicle
• $38.5 million by eliminating property tax deferral for eligible elderly, blind or disabled homeowners

Governor Schwarzenegger next plans to borrow money in the amount of $10.3 billion:

• $4.7 billion from selling revenue anticipation warrants in July 2009
• $5 billion from investors against future lottery earnings
• $594.2 million mostly by borrowing from special funds and shifiting tribal gambling revenues to general purposes contingent on receiving federal funds for transpotation and safety programs

The last $16.5 billion is to be derived from spending cuts:

• $5.2 billion cut to K-12 education and community colleges
• $1.7 billion by furloughing state employees 2 days a month until June 30, 2010
• $1.4 billion by reducing monthly grants to federal minimum for low-income aged, blind and disabled on Supplemental Security Income / State Supplemental Program and eliminating payments to recent immigrants
• $1.1 billion from CalWORKS welfare programs
• $788 million to the Department of Corrections and Rehibilitation by eliminating parole supervisions for all but those who have committed serious, violent or sexual crimes and reducing the medical budget by 10%
• $742 million to Medi-Cal by eliminating certain treatments
• $692 million by cutting UC and CSU budgets by 10%
• $459 million by eliminating general purpose grants to local transit agencies
• $473 million by reducing state payments for In-Home Supportive Services health workers
• $422.8 million to the Department of Developmental Services
• $275 million by eliminating the state First Five Commission
• $226 million by diverting money set aside in Prop 63 for mental health services
• $163.4 million by continuing through June 2010 "one-time" cuts in current budgets for state couts
• $150 million by eliminting or consolidating varitey of state entities including Integrated Waste Management Board and the California Conservation Corps
• $87 million by making various changes to the Cal Grant program including elimination of new grants awarded on the basis of competition
• $43.2 million by cutting Legislature's budget 10% and eliminating cost-of-living increase
• $37.8 million by eliminating food stamps for legal immigrants not eligible for federal assistance. [1]