Governor: Deficit is β€œRock Upon Our Chest”

Gov. Arnold Schwarzenegger on Thursday called California's massive deficit a "rock upon our chest" and said the state can address no other policy issues until the fiscal crisis is resolved.

The Republican governor delivered his sixth State of the State address amid a grim political backdrop.

California's budget deficit is expected to soar past $40 billion over the next year-and-a-half, the financial and construction industries have been decimated by the housing collapse and unemployment is on the rise.

As a result, revenue from property, sales and capital gains taxes has plunged, leading California to the brink of fiscal calamity.

"The truth is that California is in a state of emergency. Addressing this emergency is the first and greatest thing we must do for the people," he said during a relatively brief address to a joint session of the Legislature. "The $42 billion deficit is a rock upon our chest and we cannot breathe until we get it off."

Schwarzenegger warned that California, the world's eighth largest economy, faces insolvency within weeks if lawmakers fail to close the widening deficit.

State financial officials said California will run out of cash in February. If that happens, it will have to send IOUs to state contractors and taxpayers expecting refunds.

Schwarzenegger said the state's financial problems are so pressing that no other issue -- including education, water policy or health care -- can be addressed until the state's budget problems are resolved.

"Let me tell you, I have big plans for this state. They include action on the economy, on water, environment, education, and health care reform, government efficiency and reform, job creation, and the list goes on and on," Schwarzenegger said. "But our first order of business is to solve the budget crisis."

Schwarzenegger's address was unusual for its brevity, its lack of big ideas and even the time slot in which he scheduled it.

Governors typically use their annual address to the Legislature to lay out their major policy goals for the coming legislative session. In years past, Schwarzenegger has promoted bold initiatives regarding health care, infrastructure, education and water policy.

The speech is typically given to the Legislature in early evening and is sometimes carried live on local television stations.

This year's event was a spartan affair, with the speech starting at a little past 10 a.m. and concluding within 20 minutes.

The lack of fanfare illustrated the austerity of the times.

Closing California's deficit will include billions in spending cuts. Schwarzenegger has ordered state workers to take two days off a month without pay, starting in February, while departments have been asked to take 10 percent, across-the-board cuts.

Public works projects have ground to a halt because the state no longer has the money to pay for them, and teachers in some school districts have received layoff warnings as the state has run low on cash.

The sticking point in budget negotiations has been raising taxes. Schwarzenegger and Democrats have proposed raising a variety of taxes, but have not agreed on the form those should take.

The governor's latest budget plan proposes $17.4 billion in spending cuts, $14.3 billion in tax increases and $10 billion in borrowing to close the deficit through June 2010.

Republicans have refused any tax increase but have yet to show how they would cut $42 billion over the next two fiscal years to balance the budget.

On Thursday, Schwarzenegger said lawmakers were engaged in "serious and good faith negotiations" but also criticized them. He said they were more devoted to party ideology than working for the people who elected them.

In the future, he said, lawmakers and the governor should not receive their salaries or per diem payments -- daily expense money -- for each day they miss the constitutional June 15 deadline for producing a budget. Schwarzenegger, who is personally wealthy, does not take a salary from the state.

"If the people's work is not getting done, the people's representatives should not get paid either. That is common sense in the real world," he said."

Environmentalists Join Fray

As Schwarzenegger and lawmakers struggle to contain a ballooning deficit, he has insisted that any budget deal include a provision suspending state environmental review for certain public works projects.

The governor said that would fast-track infrastructure projects and put Californians back to work quickly. He said his proposal would accelerate construction on 10 road projects around the state, noting at a recent news conference: "It's about jobs, jobs, jobs."

Last week, Schwarzenegger vetoed a Democratic budget proposal, in part because it lacked the environmental rollbacks he and many in the business community desire.

Schwarzenegger also has asked President-elect Barack Obama to exempt road construction from key federal environmental reviews as part any congressional economic stimulus package.

Democrats who oppose the scope of the governor's demand contend the projects exempted from environmental review would fail to boost the economy quickly, while environmentalists are outright puzzled by his position. They have considered Schwarzenegger an ally because of his crusades against global climate change and his advocacy of alternative energy.

"The demand by the governor to do an end-run in environmental laws just flies in the face of his environmental agenda," said Ann Notthoff, California advocacy director at the Natural Resources Defense Council.

The governor's spokesman, Aaron McLear, said Schwarzenegger has earned his reputation as a defender of the environment.

"To suggest he is anything less than one of the most passionate protectors of the environment is laughable," McLear said.

Two of the freeway projects Schwarzenegger wants to fast-track through environmental exemptions have been the subject of legal battles over air pollution concerns.

One is a freeway expansion in the Sacramento area that was blocked last year by a judge because the state failed to analyze the potential effects of the added lanes on greenhouse gas emissions. Schwarzenegger's budget proposal would override the judge's ruling.

Tom Adams, president of the California League of Conservation Voters, said the governor should not try to subvert long-standing practices for reviewing public works projects.

"We have created a separate branch of government so these disputes are decided on the facts and the law in a way that's isolated from the political process," he said. "It's completely inappropriate for the administration to go to the political branch and have them start meddling in a lawsuit."

Schwarzenegger has argued that if he and lawmakers raise state taxes, they must also employ an economic stimulus to jump-start job growth.

California's unemployment rate, at 8.4 percent, is among the highest in the nation. He and other Republicans say the state's economy will deteriorate further if the government doesn't take swift action, including faster work on road projects.

"We want to build the roads in the next two or three months without any delays of red tape and environmental holding back and lawsuits that hold you up for another two, three years," Schwarzenegger said.

Exempting the projects from the California Environmental Quality Act would accelerate construction timetables from five months to a year and put roughly 21,000 people to work earlier, said Will Kempton, director of the California Department of Transportation.

The administration also wants to speed permitting for the projects and create a special panel of cabinet members that could override or modify environmental conditions imposed by wildlife agencies or air pollution regulators.

Without those changes, most of the projects wouldn't start until 2010, Kempton said.

The Legislature has authorized environmental exemptions for levee projects in the past, but Democrats warn that what Schwarzenegger is seeking would set a harmful legal precedent and do little to solve the state's long-term financial crisis.

"We are not willing to say that a member of the public has no opportunity to challenge the environmental finding of a state agency," said Senate President Pro Tem Darrell Steinberg, D-Sacramento.

Copyright AP - Associated Press
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