Schwarzenegger warns of more budget cuts

By Don Thompson, AP

SACRAMENTO, California — Gov. Arnold Schwarzenegger warned Tuesday of future cuts to the state budget that was signed into law just two weeks ago and insisted something must be done to address California’s mounting financial problems. The governor will call legislative leaders back to the Capitol on Wednesday to propose a possible special session of the Legislature to discuss budget concerns.

“We have to even make additional cuts as times go on because I think there will be even less revenue,” the governor said in San Francisco. Revenue for the first quarter of the state’s fiscal year is down US$1.1 billion from the projections in the governor’s May revision to the budget, state Controller John Chiang reported Tuesday. The controller warned that higher unemployment and poor projections for the holiday shopping season offer little hope for a quick recovery.

In addition to sales tax, the state’s budget relies on state income tax and capital gains taxes, which are affected by the stock market. The immediate concern is the state’s ability to pay its day-to-day expenses. The ongoing national credit crisis means the state may have trouble selling $7 billion in short-term bonds next week. Chiang estimates the state will temporarily run out of cash by Oct. 29 if it can’t sell the bonds. The state routinely borrows to keep paying its bills until tax revenue begins flowing in April, but the current frozen credit market has presented an unexpected complication. Schwarzenegger sent a letter last week to Treasury Secretary Henry Paulson asking if the state could borrow from the federal government if the state is unable to sell the bonds.