Pat Dollard

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by Judy Lin
Associated Press

SACRAMENTO — California will run out of cash in two months unless lawmakers act swiftly to close a widening deficit and pass a budget, two state finance officials warned Friday.

Failure to balance the state’s books quickly will trigger a financial storm much greater than the one the state endured this past winter, when it stopped infrastructure projects and delayed payments to vendors and refunds for taxpayers, state Controller John Chiang told lawmakers at a budget hearing Friday.

“No matter how bad you thought February was, without immediate and real fixes to the state’s finances, sometime next year we will have a cash crisis that is four times as broad as what it would have been this fiscal year,” he said.

Based on April 15 tax collections, Chiang said the state’s treasury will be $2.1 billion in the red in July. The projection does not include the rejection during Tuesday’s special election of five budget-related measures, which increased the deficit by $6 billion. It also does not include billions of dollars the state has borrowed from internal funds and must repay.

Chiang urged state lawmakers to pass a budget by their June 15 constitutional deadline. If they don’t act quickly to cut spending or raise revenue, Chiang said the deficit will hit $14.3 billion by December.

It is projected to be $24.3 billion for the entire fiscal year.

Illustrating how quickly revenue has dropped, the state Board of Equalization
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on Friday cut quarterly sales tax payments to local governments by $122.8 million. The total is nearly 20 percent less than what they had anticipated to hand out.

In a letter sent this week to counties, the state said cash receipts were down dramatically. Gov. Arnold Schwarzenegger’s finance department had estimated sales tax collection would drop 7.4 percent, but actual receipts for the first quarter were down more than 18 percent.

“Prior to this year, we haven’t seen this type of broad-scale reduction statewide,” said Anita Gore, a spokeswoman for the Board of Equalization.

It’s too early to tell what effect the state’s temporary 1 cent sales tax increase will have since it took effect April 1. Schwarzenegger and lawmakers agreed to the two-year hike as part of a February compromise.

They also raised the state’s personal income tax rate and vehicle license fee.

The governor and lawmakers are trying to address a $24.3 billion deficit through mid-2010, or roughly 25 percent of the state’s general fund.