Schwarzenegger Declares Emergency, Calls Special Budget Session

California Governor Arnold Schwarzenegger, citing a $25.4 billion budget gap over the next 19 months, declared a fiscal emergency and called lawmakers to a special session next month to begin dealing with the problem.

Schwarzenegger, a Republican whose term ends in January, late yesterday ordered the session to start Dec. 6, the day newly elected legislators are sworn in. He wants to take steps to erase an officially estimated $6.1 billion gap that has already emerged in the budget enacted last month.

In addition to the gap forecast for the fiscal year through June, the nonpartisan Legislative Analyst’s Office yesterday projected a $19 billion gap in the following 12 months. By Jan. 10, Governor-elect Jerry Brown, a Democrat who will be sworn in Jan. 3, must propose a plan to erase the next year’s deficit.

“The LAO’s estimate is a sobering reminder that California’s economy is still struggling,” Schwarzenegger, 63, said in a statement. “I have spoken to all four legislative leaders and they know what we are up against. They know it won’t be easy, but they also know they cannot wait to take action.”

The authority to declare a fiscal emergency comes from ballot measures Schwarzenegger championed in 2004, when he won approval to borrow $15 billion to fill that year’s budget gap.

Under the action, lawmakers must take up legislation to deal with the emergency within 45 days. If they fail to meet that deadline, they are barred from doing any other legislative work or adjourning until they address the emergency.

‘Enormous Challenges’

“This special session underscores the enormous challenges facing the state,” Evan Westrup, a spokesman for Brown, 72, said yesterday in a statement. “While the governor-elect did not create this fiscal crisis, he and his transition team will continue the work they started after election day, collaborating with administration and department of finance officials, the legislative analyst’s office, legislators, and others to address California’s budget problems.”

The special session will follow state borrowing of more than $14 billion over two weeks starting Nov. 15. Standard & Poor’s rates California general-obligation debt A-, its fourth- lowest investment grade and its lowest for any state. Moody’s Investors Service gives it an A1, one step higher. Fitch Ratings also ranks it A-.

The extra yield that investors demand to hold 10-year general-obligation debt from California instead of top-rated tax-exempt bonds was unchanged yesterday at 121 basis points, according to Bloomberg Fair Market Value data. A basis point is 0.01 percentage point.

100-Day Record

Schwarzenegger and lawmakers last month ended an impasse over how to eliminate a $19 billion deficit to complete the state’s budget a record 100 days into the fiscal year. Amid stalemates in 2009 over comparable gaps, the state had to issue IOUs to pay bills until a spending agreement was reached.

“As we know from experience, putting off the hard decisions to bring spending in line with our revenues only makes solving the problem more difficult,” Schwarzenegger said. “Legislators will have to face the ugly truth that we can only spend the revenues we have.”

Voters on Nov. 2 approved a ballot measure lowering the legislative margin needed to pass a budget from two-thirds to a simple majority. A supermajority still must approve tax and fee increases. While Democrats control the Senate and Assembly, they lack enough votes to reach the two-thirds threshold.

“There’s no doubt that facing a $25 billion deficit, all lawmakers need to focus on the budget with urgency,” Connie Conway, the leader-elect of Assembly Republicans, said yesterday in a statement. “We should all be working together toward a common goal of bringing the budget into balance. The sooner we start reducing spending, the quicker we realize savings.”