California's deficit grows to $16 billion

December 22, 2008 2:14:22 PM PST
California's legislative analyst revealed the problems are far worse than originally forecast.

The deficit of $14.5 billion dollars has ballooned in the past few months, primarily because of the housing crisis. As the number of foreclosures has grown, so has the deficit -- it now stands at $16 billion.

The budget deficit is a billion and a half dollars more than the governor projected. The new number actually raises the debate up a notch of whether it's time for new taxes.

California's non-partisan fiscal watchdog blames the slumping housing market for creating a rippling effect throughout the economy.

The result? Sharp drops in tax revenue from three major sources.

"The personal income tax, the sales and use tax and the corporate tax. That decline in revenues means we have a larger budget problem than what was estimated," said legislative analyst Elizabeth Hill.

Hill thinks Governor Schwarzenegger's plan of 10-percent across-the-board cuts is so flawed, she offered for the first time ever, her own plan to fix the state's budget problems.

It calls for a combination of cuts and $2.7-billion in new taxes, including reducing tax credits for dependents, adding a dime to every gallon of gasoline bought in the state, increasing tuition by 10-percent at all Cal State and U.C. campuses and closing the yacht tax loophole.

Talk of more budget cuts are sparking protests every day.

The disabled oppose the proposal to reduce hours their home care workers can provide. And some parents, kids and their teachers won't stand for less funding for their classrooms.

"Cutting from schools, from our children, from education from our future it's just so wrong," said Marin County parent Cindy Ross.

But cuts are a reality. Governor Schwarzenegger and fellow Republicans refuse to raise taxes.

In fact, with the emergency, mid-year cuts behind them, the Governor wants lawmakers to start chopping the new budget, which starts July 1st.

"It takes months for any of the cuts to take effect, and this is why this is important to do this now," said Gov. Arnold Schwarzenegger (R) California.

The emergency budget cuts lawmakers made last week might waddle the deficit down to half, but if the housing market gets worse, that could ruin any progress.


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