California Revenue Collection For September Down By $1 Billion, Newly Passed Budget Expected To Hit Red Soon

October 7, 2008 6:15 a.m. EST

Sacramento, CA (AHN) - The controversial California budget, approved barely a week ago, appears headed for the red soon.

The substantial drop in tax collections caused by the economic slowdown, the unavailability of short-term loans because of the global credit crunch and a judicial order mandating California to pay for $8 billion for seven new prison medical facilities may pressure Gov. Arnold Schwarzenegger to run to the federal government for an emergency cash loan and the state legislature to pass spending cuts.

California press secretary Aaron McLear told the Los Angeles Times, "The governor is watching the financial condition of the state very closely... With revenue coming in lower than expected, a special session is something he will discuss with the leaders."

According to legislative staffers, for September alone, revenue collection was below $1 billion from projection. Lower income from taxes is expected to go on as the U.S. economy goes through a recession phase.

To compound California's financial problems, U.S. District Judge Thelton Henderson said Monday he will likely issue an order mandating the state to turn over to the receiver, J. Clark Kelso, $250 million as first installment on three new medical and mental health units being built for California inmates.

The initial amount is just for the design. By July 1, Kelso said he would need over $3 billion to start the construction phase. The balance will be due in the coming years as the state completes the medical facilities.