California Budget: The Impact on Sacramento

California’s budget deficit now stands at $24.3 BILLION. In his attempt to address the budget shortfall while avoiding a $5.5 billion ask from Wall Street, Schwarzenegger wants $5.6 billion in new cuts and has also proposed borrowing $2 billion from local governments over the next fiscal year. 

According to the WSJ:

…in [Schwarzeneggers] efforts to find funds to balance the state budget, has proposed borrowing $2 billion from municipal governments over the next fiscal year, a tactic that is rankling local officials up and down the state.

Mr. Schwarzenegger is invoking a 2004 law that lets the state demand loans of 8% of property-tax revenue from cities, counties and special districts. Under the law, the state must repay the municipalities with interest within three years.

Administrators of already cash-strapped cities and counties said the loans would force even deeper cuts in services. Fewer cops and fire engines would be on the streets, they said, and parks and libraries would be closed more often. And some local governments would be forced to lay off workers to keep their budgets out of the red, they said.

The proposed borrowing would result in a $7.4 MILLION transfer from the City of Sacramento to the State General Fund coffers.  A devastating hit considering the City is currently facing a $50 MILLION budget deficit of its own.

In this clip from CBS 13, California League of Cities Executive Director Chris McKenzie speaks about the potential impact of raids on local government.  The clip is from May, but in light of the pending borrowing proposal it is still salient.

And Schwarzenegger isn’t done yet. The governor’s aides are expected to outline an additional $3BILLION in cuts by Friday, responding to new projections showing that the deficit is larger than he originally anticipated.


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