Video: Schwarzenegger faces off with Calif. legislature

updated 6/2/2009 4:43:56 PM ET 2009-06-02T20:43:56

Gov. Arnold Schwarzenegger told a joint session of the Legislature on Tuesday that California's budget crisis will require a transformation in state government.

The state faces a $24.3 billion deficit and a looming cash crisis that jeopardizes its ability to pay its day-to-day bills. The governor said government must become more efficient and learn to provide services for less.

"Our wallet is empty. Our bank is closed. Our credit is dried up," he said in the rare midyear appearance, which lasted less than 15 minutes.

His speech comes just four months after he and lawmakers agreed to a two-year budget package that was intended to close a deficit of $42 billion through mid-2010.

Declining tax revenue and overly optimistic assumptions about the tax increases they approved in February have reopened the state's deficit.

"California's day of reckoning is here"
Schwarzenegger said state tax revenue has dropped 27 percent from last year and has returned to 2003 levels.

In a letter to legislative leaders last week, Controller John Chiang warned that California will run out of money to pay its bills on July 29. He called on lawmakers to pass a balanced budget by their June 15 constitutional deadline so the state can access short-term loans in a tight credit market.

Its new fiscal year begins July 1.

"California's day of reckoning is here," Schwarzenegger said.

He has outlined a series of cuts that include an additional $5.2 billion reduction in funding for public schools, laying off 5,000 state workers and further cutting the pay of 200,000 others. He has proposed eliminating welfare for 500,000 families, terminating health coverage for nearly 1 million low-income children and closing 220 state parks.

"People come up to me all the time, pleading 'Governor, please don't cut my program.' They tell me how the cuts will affect them and their loved ones," Schwarzenegger said. "I see the pain in their eyes and hear the fear in their voice. It's an awful feeling. But we have no choice."

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"Cavalier" attitude about problems?
The Republican governor and legislators of his own party say they will not raise taxes, after agreeing to $12.8 billion in higher sales, personal income and vehicles taxes earlier this year.

The Democratic leaders of the Assembly and Senate pledged to work quickly to resolve the deficit but said they would resist cuts that would wipe out vital programs, particularly those for children and the poor.

"This is going to be traumatic to a lot of programs and a lot of people, but we are committed to avoiding the wholesale elimination of major investments that matter to the people of California," said Democratic Senate President Pro Tem Darrell Steinberg.

Democratic Assemblyman Tom Ammiano said Schwarzenegger glossed over his own role in creating California's fiscal crisis and showed a "cavalier" attitude about the problems.

Legislative leaders were scheduled to meet with Schwarzenegger later Tuesday.

In the May special election, voters rejected all five budget-related measures placed on the ballot by Schwarzenegger and legislative leaders. That included three the governor said would have raised about $6 billion. Another measure would have extended the tax hikes for one to two years.

The state's revenue has continued to plummet as residents have reduced spending and the unemployment rate has soared to 11 percent. Democratic lawmakers and the Schwarzenegger administration have even inquired about having the federal government give California a loan guarantee, an unprecedented step that is seen as way for the state to lower its borrowing costs.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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