State Budget Shortfall Could Be Larger Than Expected

There's some rumbling in the State Capitol this week about a gigantic budget shortfall next year, one that'll be a lot bigger than the pretty big pool of red ink that was expected. KPCC's Julie Small says it's true, and it's got Sacramento worried.

Julie Small: Governor Schwarzenegger's staff won't say exactly how big next year's deficit will be. But Finance Director HD Palmer says it'll travel far north of the $6.1 billion deficit that had been projected when the governor signed the state budget. Palmer says, blame the housing market.

HD Palmer: If you're not building as many new houses, then you're not buying as many big ticket durable goods items, like heating and air conditioning systems, refrigerators, washers and driers, dishwashers. And that has an implication for the state sales tax as well.

Small: Palmer says the sub-prime lending crisis has forced up interest rates. That's put the squeeze on car loans, which means fewer car sales. Guess what's the state's biggest source of sales tax revenue? Right: Car sales. Palmer says the Department of Finance is digging between the couch cushions for spare change, and looking for ways the state government can save money.

Palmer: It unquestionably is going to involve difficult decisions. But we wouldn't be doing our job and being fiscally responsible if we were not, at this stage of the game, developing a range of options for the governor to consider, to close what will be a significant budget gap in our estimation.

Small: The range of options could include cuts across all state programs, from education to transportation to health care. But Palmer says the governor won't make any final decisions until early December. That's when the Department of Finance will revise the state's revenue projections.