State Budget Goes to Governor

California's state budget is now in the hands of Governor Schwarzenegger. It's two and a half months late and aims to close a $15 billion deficit. KPCC's Sacramento reporter Julie Small talked to Morning Edition host Steve Julian about the budget. Julie says even after the Governor signs the budget, some of the items in the spending plan are still up in the air.

Steve Julian: California's state budget is now in the hands of Governor Schwarzenegger. It's two and a half months late, and aims to close a $15 billion deficit. Julie Small is KPCC's Sacramento reporter. Julie, how will this budget close that budget?

Julie Small: Well, it's pretty much this $104 billion spending plan, and it's made up pretty equally of cuts and ideas to bring in new revenues for the state. It sets a very small reserve of $800 million, and we usually keep a cash reserve of two billion, and so I think they can expect to see the governor holding off signing this bill right away and spending a little time blue-lining some cuts, some additional cuts to bring up that cash reserve.

Julian: So you don't see him signing it today?

Small: You can't be sure. He has had the weekend, I'm sure his staff has been working on it, but it's not on schedule yet, and I would imagine he wants everyone to show up for that one. (laughs) For the record amount of time, they've finally done it, so I would expect might, maybe tomorrow.

Julian: Now, this latest budget, there have been a couple of them, includes things like higher penalties on businesses that don't report taxes, but they also had to drop some things to get it to the governor. What won't we see in this final version?

Small: We will not see a plan to withhold 10 percent more from Californians' paychecks. That was very controversial, with the governor called it borrowing from taxpayers, and he wanted it out.

There were some trailer bills, some significant things attached to the budget that also got killed in the middle of the night, such as a plan to fund $8 billion in new prison hospital construction. That won't be happening. That got killed.

Julian: Well what happens if a court signs with Clark Kelso, the federal receiver, and awards that money to him to build these prison facilities?

Small: That would be a huge problem, because he's looking for $8 billion, and it would come right out of the general fund, and we could find ourselves with a $8 billion hole. What is likely to happen if the state was ordered to hand over the money, I think they would come up with a very similar plan to borrow the money through bonds.

Julian: Is any of the deficit going into next year?

Small: Oh, yeah. We can count on that. I mean, they're projecting already that it will start already next year with our 1 and a half billion dollar deficit, and that's if everything goes well (laughs), and that's a pretty big "if" given what's going on in our financial markets right now.

Julian: Julie, some of the items in the budget still have to go before voters. Do we know how voters feel about these measures, and will they even work?

Small: One of the main plans is to sell the future proceeds of the California lottery to Wall Street investors, and that's expected to bring in 5 billion one year, and 5 billion in the next. Not sure voters will go for the idea of allowing the state to do that, because it also requires making some changes to the lottery to modernize it, and the idea of to drive up sales.

Some people are opposed to gambling, so there's some controversy there, and even if it does pass, there's the question of whether Wall Street, in the state that its in, will be very interested in buying, you know, the future proceeds of the California lottery, which hasn't performed very well. Julian: We don't even know what Wall Street will look like then.

Small: That's true. We really don't.

Julian: When might they hold that election, if it happens?

Small: The next likely opportunity would be March 3rd, but the governor said on Friday that he thought it would be in June, and whenever we hold it will be a special election, and the cost could be anywhere from 50 to a hundred million dollars to California taxpayers.

Julian: KPCC's Julie Small is in Sacramento following the state budget. Thanks so much, Julie.

Small: Thank you, Steve.