Schwarzenegger Depends on Federal Money to Close Budget Gap: Failure May Result in More Cuts to State Services

Governor Schwarzenegger and legislative leaders are counting on the federal government to provide the state with funding to help stave off a massive $19.9 billion budget deficit that may result in significant spending cuts should the money not arrive.

The governor made the plea in his annual budget proposal, released in January. The state will ask Washington for $6.9 billion in funds it claims are owed from the federal government. “Federal funds must be part of our budget solution because the federal government is part of our budget problem… right now there are discriminatory formulas that force California to subsidize other states. We are asking the federal government to pay us what they owe us,” Schwarzenegger said in a speech.

Members of the state’s congressional delegation were not initially receptive to the request. Senator Barbara Boxer (D-CA), who faces a tough re-election campaign this year, disputed the assertion that California has been shortchanged. According to The Sacramento Bee, she released a report that concluded that California actually received more than it sent to the federal government in 2008 and 2009, a result of increased federal stimulus money. “I just wanted to make the case that California is struggling, and we’re helping,” she told the paper.

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California’s other senator, Diane Fienstein (D) argued that the problem is not in the nation’s capitol. “It sounds like the governor is looking for someone else to blame for California’s budget. California’s budget crisis was created in Sacramento, not Washington,” she said, “These problems are not going away until there is wholesale reform of the state’s budget process.”

The criticism led to a strong rebuke from the governor. He noted that during the Bush administration many leaders, including Senator Feinstein, had no problem complaining about the underfunding of California. “Members of our delegation rightly castigated the federal government when President Bush was in office because those promises have not been kept,” he wrote in a January 13 letter. “You were right to fight for California then, and we need you to continue fighting for California now.”

However, many analysts predicted that the governor would likely end up with little or none of what he asked for. The nonpartisan legislative analyst reported the chances of the full amount of federal funds arriving as very small. “The Legislature should assume that federal relief will be billions of dollars less than the Governor wants,” the office wrote. The opinion is echoed by most experts, including academics and bond analysts.

Some suggested that the state could expect a higher likelihood of success if it combined forces with other states, making it a request from states in general, not just California. “To win the support of Congress, our governor should be going to Washington arm in arm with the 45 other governors who are also facing shortfalls this year,” said Jean Ross, director of the California Budget Project in the Christian Science Monitor.

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Should the state be unsuccessful in attaining federal dollars, Schwarzenegger would likely propose more cuts to state services. Higher education funding could be impacted, which Schwarzenegger declared in his State of the State speech he would prefer not to cut further. HD Palmer, the governor’s finance director, told The Daily Californian that the state may look at decoupling Cal grant awards from UC and CSU tuition increases. Other cuts would likely come from social services and local governments, among other areas. Schwarzenegger has vowed not to increase taxes after doing so in February of 2009. A revised budget will be released by the governor in May, with the legislature required to pass a spending plan by June 15, although the constitutional deadline is routinely missed. The new fiscal year begins July 1.

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