2008–2009 California budget crisis

U.S. state

A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...

of California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...

had, and still currently does have, a budget crisis
Budget crisis
A budget crisis is an informal name for a situation in which the legislative and the executive in a presidential system deadlock and are unable to pass a budget. In presidential systems, the legislature has the power to pass a budget, but the executive often has a veto in which there are...

in which it faced a shortfall of at least $

United States dollar

The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

11.2 billion, projected to top $40 billion over the 2009–2010 fiscal years.

2008

On September 23, 2008, about 3 months after its due date, Governor Arnold Schwarzenegger

Arnold Schwarzenegger

Arnold Alois Schwarzenegger is an Austrian-American former professional bodybuilder, actor, businessman, investor, and politician. Schwarzenegger served as the 38th Governor of California from 2003 until 2011....

signed the 2008-2009 budget. Worsening financial conditions that followed left the state with a large shortfall.

A two-thirds vote is required to pass a budget, and in both the original budget negotiations and in the attempt to revise the budget no political party by itself had enough votes to pass a budget. The majority Democrats

California Democratic Party

The California Democratic Party is the state branch of the Democratic Party in the state of California, headquartered in Sacramento. It is chaired by veteran Democratic politician and former United States Representative John L. Burton, who succeeded Art Torres in April 2009. It is the majority...

fought to minimize cuts to programs, while most of the minority Republicans

California Republican Party

The California Republican Party is the California affiliate of the United States Republican Party. The party chairman is Tom Del Beccaro and is based in Burbank, California, a suburb of Los Angeles. The RPC also has a headquarters in Sacramento....

refused to accept any tax increase. The original budget was put together by Democrats and some Republicans using spending cuts, internal borrowing, and accounting maneuvers.

In November 2008, Schwarzenegger proposed spending reductions including the following measures concerning state employees:

One furlough
Furlough
In the United States a furlough is a temporary unpaid leave of some employees due to special needs of a company, which may be due to economic conditions at the specific employer or in the economy as a whole...

day per month, equivalent to a reduction in pay of about 5 percent.
Elimination of the Columbus Day
Columbus Day
Many countries in the New World and elsewhere celebrate the anniversary of Christopher Columbus's arrival in the Americas, which occurred on October 12, 1492, as an official holiday...

and Lincoln's Birthday
Lincoln's Birthday
Lincoln's Birthday is a legal holiday in some U.S. states including California, Connecticut, Illinois, Missouri, New Jersey, New York, and Indiana. It is observed on the anniversary of Abraham Lincoln's birth on February 12, 1809....

holidays.
Employees who must work on holidays would receive holiday credit for later use, as opposed to receiving time-and-a-half pay.
Employees would more easily be able to work four ten-hour days per week.
Overtime pay rules would be changed so that leave time would no longer be considered as part of time worked.

In December 2008, Schwarzenegger ordered mandatory furloughs of two days per month for state employees, as well as "layoffs, reductions and other efficiencies" to achieve savings in the General Fund of up to 10%.

2009

Labor organizations filed lawsuits and took other actions in an attempt to stop the furloughs of state workers. On Jan. 29, 2009, a Superior Court Judge ruled that Schwarzenegger had emergency furlough power, and on February the 3rd District Court of Appeal in Sacramento said the appeal to the decision came too late and was incomplete, so judges were unable to determine if a halt to state furloughs is legally justified. As part of the furlough, various state offices were closed on the 1st and 3rd Fridays of every month from February 1, 2009 through June 30, 2010, which was estimated to save the State $1.3 billion.

By February 2009 California State Controller

California State Controller

The State Controller is the Chief Financial Officer of the State of California in the United States. The post has broader responsibilities and authority than the California State Treasurer...

John Chiang

John Chiang (California politician)

John Chiang is a Democratic politician and has been California State Controller since January 8, 2007. He previously served as Chair of the California Board of Equalization and represented the Fourth District, primarily serving southern Los Angeles County...

delayed $3.5 billion in state payments (such as state tax refunds) for at least 30 days because the state was experiencing cash flow difficulties.

The state legislature passed a budget in February 2009 that depended on the voters approving tax extensions and money redirection into the general fund, which in May the voters did not approve. Governor

Governor of California

The Governor of California is the chief executive of the California state government, whose responsibilities include making annual State of the State addresses to the California State Legislature, submitting the budget, and ensuring that state laws are enforced...

Arnold Schwarzenegger

then proposed $16 billion in cuts and also borrowing money from local governments. In the legislature, the Republicans

Republican Party (United States)

The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...

agreed to lower the income of state employees, but the Democrats

Democratic Party (United States)

The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...

resisted these proposals and suggested increasing fees to be paid by smokers and oil wells. Neither party agreed to borrowing money from local governments.

On April 1, 2009, the state sales and use tax was temporarily increased by one percentage point.

The state had been selling bank-guaranteed short-term notes to get cash, but in June 2009 its credit rating was lowered. When the state asked for a federal guarantee of the notes, the Obama

Barack Obama

Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...

administration

Presidency of Barack Obama

The Presidency of Barack Obama began at noon EST on January 20, 2009 when he became the 44th President of the United States. Obama was a United States Senator from Illinois at the time of his victory over Arizona Senator John McCain in the 2008 presidential election...

said it had no legal authority to back state notes and that the state should solve its own problems.

On July 1, 2009, Schwarzenegger ordered state workers to take a third furlough day each month. On July 2, 2009, the state government began issuing IOU

IOU (debt)

An IOU is usually an informal document acknowledging debt. An IOU differs from a promissory note in that an IOU is not a negotiable instrument and does not specify repayment terms such as the time of repayment. IOUs usually specify the debtor, the amount owed, and sometimes the creditor...

s to meet its short term financial obligations. Five days later, Bank of America

Bank of America

Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...

, Citigroup

Citigroup

Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...

, Wells Fargo

Wells Fargo

Wells Fargo & Company is an American multinational diversified financial services company with operations around the world. Wells Fargo is the fourth largest bank in the U.S. by assets and the largest bank by market capitalization. Wells Fargo is the second largest bank in deposits, home...

, and JP Morgan Chase announced that they would stop accepting IOUs by July 10. Fitch Ratings dropped California's bond rating from A-minus to BBB.

On July 24, 2009, the state government passed a budget that included $15 billion in service cuts, including $8.1 billion in education cuts. Eliminated from the final plan included proposals to borrow money from city and county governments and to drill for oil off the coast of Santa Barbara

Santa Barbara, California

Santa Barbara is the county seat of Santa Barbara County, California, United States. Situated on an east-west trending section of coastline, the longest such section on the West Coast of the United States, the city lies between the steeply-rising Santa Ynez Mountains and the Pacific Ocean...

. Chiang announced in August 2009 that the IOU program would end the next month and that California would pay off 327,000 IOUs worth almost $2 billion.

The budget crisis led to cutbacks and many layoffs at state universities in California. In order to curb the budget shortfalls, the California Board of Regents voted on a 32% raise in all tuition costs for state universities. This led to the 2009 California college tuition hike protests

2009 California college tuition hike protests

The 2009 California university college tuition hike protests were a series of protests held on college campuses in the University of California system and elsewhere in California in September through December 2009. Protests were mostly made up of students, although faculty, school employees, and...

Causes of budget deficit

A major source of the deficit has been the continuous growth in salaries and benefits of state employees during economic boom times, some of which were lobbied by trade unions. In 2009 more than 134,000 Bay Area public employees were reported by the Contra Costa Times to have earned annual base salaries in excess of $100,000; however, many of these employees were local employees, not state employees. A database of public employee salaries was also made available by San Jose Mercury News. As per the same source over 40,000 public employees in the Bay Area alone earned over $200,000 in 2009.

In 2008 the daily news also reported six figure salaries of many public officials in LA . The Sacramento Bee maintains an updated database of state worker salaries.

Required legislative supermajorities

News reports and t and commentators have cited the state's various legislative supermajority

Supermajority

A supermajority or a qualified majority is a requirement for a proposal to gain a specified level or type of support which exceeds a simple majority . In some jurisdictions, for example, parliamentary procedure requires that any action that may alter the rights of the minority has a supermajority...

requirements as a contributing factor to the state budget crisis. The state has a long history of supermajority requirements with a 1933 state ballot measure mandating a two-thirds supermajority to pass the state budget and California Proposition 13 (1978)

California Proposition 13 (1978)

Proposition 13 was an amendment of the Constitution of California enacted during 1978, by means of the initiative process. It was approved by California voters on June 6, 1978. It was declared constitutional by the United States Supreme Court in the case of Nordlinger v. Hahn,...

mandating another two-thirds supermajority to pass tax increases. The National Conference of State Legislatures

National Conference of State Legislatures

The National Conference of State Legislatures is a bipartisan non-governmental organization established in 1975 to serve the members and staff of state legislatures of the United States...

(NCSL) notes that, as of 2008, only 9 states require a supermajority to pass the state budget and of those 9, only 3 (California, Arkansas, and Rhode Island) require a two-thirds supermajority instead of the three-fifths supermajority to pass the state budget. The NCSL also notes that, as of 2008, 15 states require a supermajority to raise taxes and that California is among the 10 of those 15 that require more than a three-fifths supermajority (i.e., a 2/3 or 3/4 supermajority).

Additionally, NCSL data shows that California is one of the only two states that requires a supermajority to pass both tax increases and the state budget. California also has the stricter two-thirds supermajority requirement instead of the more common three-fifths supermajority requirement for both the budget and tax increases.

Reforms

Proponents of ending the state's supermajority requirements note that "Since 1980, the California State Legislature

California State Legislature

The California State Legislature is the state legislature of the U.S. state of California. It is a bicameral body consisting of the lower house, the California State Assembly, with 80 members, and the upper house, the California State Senate, with 40 members...

has met the June 15 constitutional deadline for sending a budget to the governor only five times (of thirty budget periods). Only ten times has the brokering been done by the July 1 start of the fiscal year." They sponsored California Proposition 25 (2010), a ballot initiative that changes legislative vote requirements to pass a budget and tax increases from two-thirds to a simple majority (50% + 1). California Proposition 25 (2010) was approved in the state's November, 2010 general election ballot.

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