Calif. budget already obsolete

Legal News Line Oct. 28, 2008, 1:32am

Arnold Schwarzenegger (R)

Don Perata (D)

SACRAMENTO, Calif. (Legal Newsline)-Though approving a budget this year took a historic three-month impasse that nearly brought the state government to a standstill, now just a few weeks later, California Gov. Arnold Schwarzenegger said on Monday the budget must be adapted to compensate with shortfalls that have already grown into the billions.

The Republican governor who reluctantly signed the current fiscal year budget in September, will call a special legislative session for the day after the election, he said on Monday, with a goal of adapting the budget to cover the growing gap between revenue and expenses.

The Schwarzenegger administration says the deficit far exceeds the $3 billion in red estimated just weeks ago. Senate Democratic leader Don Peralta of Oakland said the gap may have grown as large as $10 billion.

This adds to the state's $17 billion budget deficit that Schwarzenegger said lawmakers did little to correct during the last budget battle, which pitted conservative anti-tax Republicans facing a looming election against a Democratic majority that was not large enough to override the two-thirds majority approval vote required by the state constitution.

With many in their final month in office, the governor is banking on a more flexible Legislature returning after the election than the newly elected group who will take office in December.

"They've dealt with the problems throughout the year, with the economic decline and housing crisis and shortfall in revenues," Schwarzenegger said in an announcement made outside his Capitol office. "They are very experienced, so I think it's very important to do this right after the election."

Several key legislative leaders stood with the governor during his press conference, following a closed-door meeting to discuss the state's financial woes.

"Part of what we want to do is look at how big the problem is," said Perata, who will leave office because of term limits on Nov. 30, "then decide how much we should do now, because as long as we delay it, it'll cause more problems later."

Earlier this month, facing a shortfall of cash on hand, the state sold $5 billion in bonds to private lenders to raise working capital.

Meanwhile, a San Francisco judge escalated the governor's financial headache into a migraine on Monday as the state attorney general's office refused to comply with an order to turn over $8 billion in funds to the state prison system.

U.S. District Judge Thelton Henderson said he would give the state until Nov. 5 to make its first transfer of $250 million to federal receiver Clark Kelso.

If the transfer is not made, Henderson said he'll proceed "full speed ahead" with contempt of court proceedings against Schwarzenegger and state Controller John Chiang, according to published reports.

But Deputy Attorney General Daniel Powell said the judge can not take the decision-making power from the state and the Legislature.

"This court has no authority to order construction of prisons," Powell said.

Attorney General Jerry Brown has said Kelso hasn't spent the previous $7 million given to him by the Legislature and has operated under a cloak of secrecy that does not give taxpayers accountability over the funds.

Kelso is a law professor appointed by Henderson to manage the prison health care system after the judge took over control in 2006 due to inadequate medical care of prisoners.

Judge Henderson ordered on Oct. 8 that the state make its first payment of $250 million that Kelso needs to begin construction in February.

Powell said Kelso must give the state detailed plans on how he intends to spend the money before it can be released, and that the Legislature must approve Kelso's plan.

But the attorney who represents Kelso said the state had already issued its approval and could not hold back the funds.

"They're in contempt of this court," the attorney told Henderson on Monday. "There's no other word for it. Unless the state gets their act together, some prisoners will die."

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