Legislative Analyst Mac Taylor says the state’s financial picture is as bleak as he’s ever seen it. He says with rising unemployment, a drop in consumer spending and the continued housing slump, lawmakers are in a bind:
"How staggering, the situation that they now face. The numbers are just truly awful.”
Taylor predicts the deficit will balloon to 28 billion by the end of next June if lawmakers don’t make major changes right away. That’s a few billion more than the Department of Finance projects. He says the future picture is just as rough – with deficits in the 22 billion dollar range through the fiscal year that ends in 2014. He says that’s what makes the current crisis so much tougher than previous downturns:
“Given that we’re coming off a very bad year, we now have a huge problem and we’re forecasting very meager economic recovery. In the past, we’ve always assumed we’d bounce back faster, we’d get back up to our old revenue levels sooner – that’s not the case this time.”
Governor Schwarzenegger called lawmakers into a special session and outlined a plan to close the gap last week. It relies on both cuts and tax hikes – including a sales tax increase. Taylor says the Governor’s plan is reasonable. But he suggests some alternative tax hikes – such as an income tax increase of five percent for all tax-payers, and a bump in the vehicle license fee. That’s the so-called “car tax” that Governor Schwarzenegger cut when he first took office. And Taylor says some relief may come from a federal economic stimulus package. That’s something that Democratic Assembly Speaker Karen Bass is hoping for:
“I’m just saying that I think that states need to be raised to the level of AIG, to the level of the banks, to the level of the auto industry. We can’t let one of the world’s largest economies go over the cliff.”
Republicans remain opposed to higher taxes. They maintain that would hurt jobs and the economy. They propose instead suspending some programs and looking at ways to create jobs. Lawmakers will hold a hearing on Governor Schwarzenegger’s proposals later this week.