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Treasurer, Finance Director Say Federal Stimulus Aid Won't Head Off New State Taxes, Program Cuts

By Jeff Hudson - March 27, 2009

California state government got another dose of bad news on Friday morning, with developments that will likely result in higher taxes, further cuts to social services, and perhaps a reconsideration of the state's 2009-10 budget.

State Treasurer Bill Lockyer and Department of Finance director Mike Genest announced that the state stands to receive $8.17 billion in federal stimulus funds toward the state's general fund – about $1.8 billion short of the $10 billion that would be needed (under the terms of the recent state budget compromise) to avoid implementation of $2.8 billion in additional income taxes and further program cuts.

As a result of Lockyer and Genest's determination, roughly $1 billion in additional program reductions will now go into effect.  Among those who will feel the cuts: low-income Medi-Cal patients who will not get dental coverage, welfare recipients, and elderly and disabled citizens who will no longer receive certain benefits.  Funding for state universities will also take a hit.

In addition, Californians will be paying higher state income taxes – one estimate suggested that the average family will probably pay about $100 more per year.

In a letter to Gov. Schwarzenegger announcing the determination, Lockyer said "I am deeply concerned about all of these consequences, both fiscal and human . . . Slashing $200 million in state funds for optional dental benefits and the minimum pay guarantee for in-home supportive services workers targets people who most heed our help."

Lockyer urged the Governor and the Legislature "to reconsider at least these two programmatic cuts before they take place on July 1."

"The choices before the Legislature and Governor become bleaker with each morning’s headlines," Lockyer said. "The municipal credit markets only slowly recover.  Employment worsens.  The state's short- and long-term fiscal outlook erodes.  As a result, only a month following the budget's enactment, the state faces the prospect of ending 2009-10 with a deficit of $6 billion or more . . . the Legislature will likely have to reopen the February budget compromise to add revenues and/or cut more programs and services."

Lockyer's comments come on the heels of a recent finding by the Legislative Analyst's Office that the budget compromise – designed to address a yawning $42 billion deficit – was already $8 billion in arrears due to continued deterioration in California’s economy, which will mean lower revenues for the state.

Editor's Note: Jeff Hudson is the editor of EdBrief and an award-winning education reporter and writer in print, radio and television media.