To Close $19 Billion Deficit, Schwarzenegger Lets Axe Fall on State's Most Vulnerable

With a $19 billion deficit looming, and the state's credit rating taking a beating, California Gov. Arnold Schwarzenegger announced late Friday that he had no choice but to take a cleaver to the state's budget after he and the legislature agreed not to raise taxes again, as they did last year.

The "May revise" of California's 2010 budget calls for a 41 percent cut in "general government" services including elimination of CALWORKS, the state's welfare to work and child-care program, which will affect 1.4 million people, two thirds of them children. Reductions in health and welfare programs will slash programs for single mothers, low-income children, foster youth, the disabled, and senior citizens. The cuts threaten California's position as a leader in providing high-quality programs for poor children.

The governor's plan also calls for more pay cuts for state workers and reduce funding for state mental-health programs by 60 percent.

"We are left with nothing but tough choices, as you can see," Schwarzenegger said, adding that all "low-hanging fruit" had been eliminated in earlier rounds of budget balancing.

The deep cuts became necessary after Schwarzenegger and the legislature failed over four months to close the $19 billion gap, equivalent to a quarter of the state's general fund spending. Extra pressure was added when the state's high 12.6 percent unemployment rate (among the highest in the nation) failed to decline over the past six months and personal income tax revenue for the year proved to be $3 billion less than originally projected.

A survey released early this year by the Public Policy Institute of California asked voters if they preferred to raise taxes or cut services in order to close the state's $20 billion budget gap, but there was no consensus: 41 percent favored a mix of cuts and tax increases and 37 percent said they favored mostly cuts. Only 9 percent favored mostly tax increases.

The one thing they did make clear: they didn't want an axe taken to K-12 school funding, and were even willing to pay more taxes to keep the school budget where it is. The governor heard that message: school funding was frozen at current levels.

The National Governors' Association has warned that even as the country continues to recover from the recession, states are likely to face increasingly tough fiscal challenges the next few years, and may not recover until the end of the decade. The axe has fallen the hardest so far in California, but other states may soon be experiencing similar levels of pain.