California Struggles as President-Elect Obama Promises Aid to States

State legislatures across the country are facing budget shortfalls.

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SAN FRANCISCO—The clock may be about to strike midnight on the California state legislature, which, along with many other state assemblies across the country, is desperately trying to close a widening budget deficit before its political capital runs out. According to the National Governors Association, more than 40 states are facing a combined $26 billion shortfall this year, as the slowing economy continues to wipe out expected tax revenue. California alone, which struggled to close a $15 billion budget gap this summer, is facing an additional $11 billion shortfall this fall.

In another sign of the state's troubled economic situation, the mayor of Los Angeles said on Friday that the city government is facing its most challenging financial times since the Depression. "The financial crisis has already had a devastating impact on city revenues, and the national economic thundercloud continues to grow," Mayor Antonio Villaraigosa said in a statement announcing an emergency budget overhaul to address a growing $110 million gap. "The revenue picture will get worse before it gets better."

In a press conference today, President-elect Obama, who has called this an "economic crisis of historic proportions," said his economic stimulus package will include aid to state and local governments. "We are going to do what's required to jolt this economy back into shape," Obama said. "We are going to have to make sure that we are investing in roads, bridges, other infrastructure investments that lay the groundwork for long-term economic growth...We're going to be working very closely with governors. We're going to be working very closely with mayors of towns, small and large, across the country. This economic recovery plan will require their input, their participation."

Gov. Arnold Schwarzenegger, meanwhile, has called this state's legislature back to the state capital for an emergency session, hoping he can stop the bleeding by reaching a budget deal before the current legislators' terms end on November 30. Though lawmakers have been in talks since the election, a voting session planned over the weekend was canceled when no deal could be reached. And while another Senate floor session is scheduled for today, many political observers here are not optimistic that the crisis will be immediately resolved. "There will be bills put up, and we'll see where we go from there," Dave Cogdill, the Senate Republican leader, said after a meeting with Schwarzenegger and Democratic leaders yesterday. "But there certainly aren't any ironclad agreements at this point in time."

A two-thirds majority is required to pass a state budget in California, but Republicans and Democrats, much as they were this summer when the state budget was signed 85 days late, seem to be at an impasse over how best to close the gap. Republicans have refused to raise new taxes, pushing for spending cuts instead. Democrats have argued for a combination of the two, including proposals to increase the sales tax by 1.5 percent and raise fees on oil extraction in the state. Schwarzenegger hoped that by calling an emergency session of the soon-to-be-termed-out legislature he could persuade some outgoing Republicans to compromise. Democrats control both houses of the state legislature, but they still need a few Republicans to vote with them to pass a budget.

Schwarzenegger, a longtime opponent of tax increases, for his part, has said a tax hike is the only way to solve the state's budget problems. The plan he presented to the legislature after the election includes $4.7 billion in tax increases, and he has said he will not rule out a proposal to triple the state's vehicle license fee, the same "car tax" he famously opposed while running for office in 2003 and immediately eliminated once he took office. The new fee would raise the price of registering a $25,000 car from about $160 a year to closer to $500. The car tax alone could generate roughly $5 billion in new revenue for the state, a significant portion of the looming budget gap. "Everything is always on the table," Schwarzenegger told the Los Angeles Times in an interview this month. "This is a crisis situation, and one has...to look at it in a fresh new way." Nearly 75 percent of voters say they disapprove of a car tax increase, according to a poll released this week.