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California Deficit May Reach $21 Bln, Analyst Says
(Bloomberg) -- California's budget deficit may widen to almost $21 billion by next fiscal year as the most populous U.S. state's economy continues reeling from the global recession, its top fiscal analyst said in a report today.The current $85 billion spending plan Governor Arnold Schwarzenegger signed in July is likely to fall more than $6.3 billion short by yearend as several provisions within the budget falter or miss revenue projections, Legislative Analyst Mac Taylor said. That gap is in addition to a deficit Taylor said may reach $14.4 billion in the fiscal year beginning July 1. "Addressing this large shortfall will require painful choices -- on top of the difficult choices the Legislature made earlier this year," Taylor said. California, which accounts for 13 percent of the U.S. gross domestic product, confronts resurgent fiscal strains brought on by the recession even as the state undertook record borrowing. California, the largest municipal bond issuer in the U.S., has sold more than $31 billion of bonds and notes since January, including more than $10 billion in the past seven weeks. Schwarzenegger, whose budget director Mike Genest has said he is stepping down next month, will unveil his budget for the next fiscal year in January. The Legislature, requiring a two-thirds vote to raise taxes or pass a budget, has struggled to respond swiftly as fiscal strains deepened. Since February, Schwarzenegger and lawmakers have slashed $32 billion from spending, cutting into funding for schools, universities and welfare programs. They also raised taxes by $12.5 billion to balance the budget enacted July 28. Missing Projections The current year's gap comes from several provisions in the budget that won't result in projected savings or won't generate anticipated revenue. For example, the budget counts on $1 billion by privatizing a quasi-government agency that sells workers' compensation insurance to companies. State officials have said they don't expect that transaction to occur this year. Also, the state won't realize $1 billion in budgeted savings from prison spending after lawmakers failed to pass the supporting legislation. Tax-exempt, 6 percent bonds that California sold in April and due April 2038 traded today at a price to yield 5.52 percent, compared with about 4.66 percent on Oct. 6, according to data reported to the Municipal Securities Rulemaking Board. Yields on AAA municipal bonds due in 5 years slid 2 basis points to 1.94 percent, the lowest since Oct. 14, according to a Bloomberg Fair Value index. A basis point equals 0.01 percentage point. Budget Fight "We believe that it's a realistic projection of what the governor and the lawmakers are going to need to solve," Schwarzenegger's budget spokesman H.D. Palmer said during a telephone interview today. Schwarzenegger, a Republican, has already said he doesn't support further tax increases to help erase the latest deficit. Democrats, who control both chambers of the Legislature, have said they have already cut too much from needed health and welfare programs and will insist on new revenue, setting the stage for a protracted budget fight. Taylor said the state will suffer annual deficits of more than $20 billion a year for the next five years, in part because it must begin repaying budget-balancing internal loans and funding shifts that Pacific Investment Management Co.'s Bill Gross, co-chief investment officer of the world's biggest bond fund, last month called "accounting tricks that couldn't fool a grade-schooler." Posted by: Fred 2009-11-19 |
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