Gov. Schwarzenegger Calls Legislature Into Second Prop 58 Special Session

Following the legislature's failure to pass a comprehensive budget solution, Governor Arnold Schwarzenegger today declared a fiscal emergency for the state of California, allowing him to call a Proposition 58 legislative special session to address this emergency. Yesterday, the Governor declared he would veto the budget bills sent to him by the legislature which failed to provide real revenues balanced with real long term cuts, aggressive economic stimulus to put Californians to work and mortgage relief to keep Californians in their homes.

The Pooled Money Investment Board voted this week to stop $3.8 billion in state infrastructure financing over the next six months - including the stoppage of an $18 million grant recently allocated to build a permanent school for Fresno's award-winning University High School, which has operated for ten years out of temporary trailer facilities which the Governor visited today. Due to the legislature's continued failure to provide a real and comprehensive budget solution, 2,000 infrastructure projects valued at more than $16 billion are in jeopardy and tens of thousands of California jobs are immediately at risk.

While Governor Schwarzenegger has worked to fix California's spending problem and has kept state spending relatively flat for the past three budget cycles, the dramatic deterioration in revenue projections since the signing of the 2008 Budget Act presents an extraordinary situation which, combined with the volatility of our tax system, creates a revenue problem. The current fiscal year budget shortfall is projected to be $14.8 billion. Over the next 18 months, the Department of Finance shows the budget deficit reaching a staggering $41.8 billion.

Under Proposition 58, the legislature has 45 days to pass and send a bill or bills to the Governor's desk addressing the state's budget crisis. If the 45 days pass and the legislature has not passed bills to address the problem, they cannot adjourn or act on other bills until the state's fiscal emergency is addressed. The Controller, Treasurer and the Department of Finance expect the state to run out of cash in February, which is 45 days from today.

The Governor previously called a Proposition 58 special session and two legislative special sessions and announced a plan to close California's budget shortfall. <http://gov.ca.gov/index.php?/press-release/10966/> At that time, the Governor also unveiled a separate plan of targeted actions that will stop our economy's downward spiral. <http://gov.ca.gov/index.php?/press-release/10966/> His prescription is full of specific actions to generate jobs, keep jobs and businesses that are tempted to leave in California and lure those that have left back to the Golden State. The Governor's plan to stimulate employment in our state includes: accelerating hospital construction to inject approximately $160 million into California's economy; expediting infrastructure bond monies to create jobs and help unemployed residential construction workers in the hardest hit areas of the state get trained in a new type of construction; keeping high paying jobs in California by providing overtime exemptions and allowing more flexible work schedules to increase productivity; clarifying meal and rest periods to save businesses hundreds of millions of dollars in litigation costs and create less confusion from meal break violations which will mean fewer terminations; reducing barriers to public-private partnerships and "design-build" agreements to enable more infrastructure to be built better, faster and cheaper and generate more jobs during the housing downturn; and keeping television and film production in California by providing targeted tax credits and keep thousands of jobs in the state and economic output in our state.

The Governor also recently provided the legislature an aggressive plan <http://www.gov.ca.gov/press-release/10959/> to help shore up our state's economy by helping Californians stay in their homes. His proposal would bring down foreclosure rates by helping both borrowers and lenders modify existing home loans in ways that benefit both parties. Also, to prevent another mortgage crisis in the future, the Governor prescribed changes to the way mortgages are brokered and originated to make lenders more accountable, guard against risky mortgages and prevent unsustainable bubbles from ever arising again.

Governor Schwarzenegger also recently unveiled a plan <http://gov.ca.gov/index.php?/press-release/10966/> to continue to help those Californians most in need by ensuring benefits for the state's unemployed through restoring solvency to the unemployment insurance fund. The financing system for the trust fund is over 20 years old - and while benefits have increased, contributions have remained the same. The fund is projected to be $2.4 billion in the red for the coming calendar year and $4.9 billion in the red in 2010. If no changes are made, federal taxes for California employers will increase in 2012. To shore-up the fund and protect benefits to unemployed Californians, the Governor has called for a gradual increase in contributions into the fund, combined with a small reduction in benefits in order to maintain the fund's solvency.

The two proclamations Governor Schwarzenegger signed today can be found at http://gov.ca.gov/.