California Closes $26 Billion Budget Gap

California Governor Arnold Schwarzenegger has announced a deal with legislators to close a $26-billion gap in the California budget. Lawmakers in the state capital, Sacramento, are expected to vote on the deal this week. The agreement may put California's troubled economy back on track, but critics say it does not resolve ongoing problems.

After months of negotiations, Governor Schwarzenegger announced the compromise Monday evening.

"This is a budget that will have no tax increases, a budget that is cutting spending," said Arnold Schwarzenegger. "We deal with the entire $26 billion deficit, around $15 billion in cuts."

The deal ends a crisis that left California unable to pay its bills, instead issuing IOUs, or promissory notes, and further damaging the state's shaky credit status.

Budget deal required multi-billion-dollar cuts

As part of the compromise, $9 billion will be cut from public education at all levels. At public universities, student enrollment will be reduced, tuition will be raised and course offerings limited. Staff workers and faculty will face unpaid furloughs for several days each month, and some could face layoffs.

Nate Thomas, a film professor at the Northridge campus of California State University, is an officer with a teaching union, the California Faculty Association. He says the cuts will affect those at the bottom of the economic ladder.

"Those who are going to be hurt by the layoffs and by the cut classes and the decline in admissions to the CSU system, number one, will be working class people, a lot of students that are first-generation college-goers - minorities, Latin Americans, African Americans - these are the people that are going to be hurt," said Nate Thomas.

The state's health care program for the poor, Medi-Cal, will be cut by more than $1 billion. Another $1 billion will be saved through furloughs by state workers. A further $1 billion will be cut from the state prison system.

Local governments would lose more than $1 billion in the budget deal, as the state borrows or redirects their funds. Los Angeles mayor Antonio Villaraigosa says the cuts will affect such basic services as street cleaning and traffic enforcement.

The deal expands oil drilling off the California coast near Santa Barbara, a move that will generate revenue, but has upset environmentalists.

California has the eighth largest economy in the world, and there are many reasons for its problems, from the global recession to a banking and mortgage crisis that hit the state hard. California's deficit spiraled as unemployment rose two points beyond the national average, and state revenues plummeted.

Political analyst Sherry Bebitch Jeffe of the University of Southern California says the compromise provides an immediate fix for the shortfall, but does not address systemic, long-term problems.

"[This is] bandaids and chicken wire, and we will be back facing this dilemma again," said Sherry Bebitch Jeffe. "We are no closer, quite frankly, to solving this economic crisis, than we were when the budget was first declared out of balance."

She says there are political reasons for the state's crisis, including ongoing annual expenses and permanent tax reductions that were authorized by voters through ballot measures. She notes that the state also has a polarized legislature that is resistant to compromise, with an unusually high threshold - a two-thirds vote - for raising taxes or approving a new budget.

But the mood in Sacramento is upbeat for now, as both parties point to this week's deal as a short-term solution to the state's problems. The governor's website says the new budget will reduce waste in government and that the municipal bond market is reacting favorably to the deal, a sign that the state's credit rating may be improving. Democrats say they prevented further cuts, which the governor had wanted, to health care and education.