California could face still more woes, despite new budget

SACRAMENTO — Don't get too comfortable, California.

Sure, Gov. Arnold Schwarzenegger signed a budget revision Tuesday intended to resolve the state's $24 billion deficit and get the state past June 2010.

But the plan has plenty of land mines that could rupture the budget balance and force lawmakers to return to the negotiating table in a matter of months.

The biggest is the state's economy.

While the budget accounts for lower revenues as the state works through an economic recession, if California's 11.6 percent unemployment rate worsens or the stock market slumps, the state could miss projections and face another shortfall. State revenues in June, for instance, were $536 million lower than the governor had anticipated just weeks before in his revised May budget.

"California has one of the higher rates of unemployment, we were the state that was the center of the housing boom-bust," said Daniel Mitchell, professor emeritus at UCLA's Anderson Graduate School of Management. "We have a lot to do to work our way out of the problem that was created. So there is a broad element of risk."

Other problems exist.

The state is counting on a $1.7 billion payment from redevelopment agencies that faces a tough legal fight. The California Redevelopment Association is preparing to file suit against the fund shift within the next 60 days, said its executive director, John Shirey.

Part of that shift – $350 million – is money the state wanted to take last year. But a Sacramento Superior Court judge blocked that payment in April on grounds that the state planned to take money from redevelopment districts and give it to schools outside those areas.

Lawmakers believe the new $1.7 billion shift is constitutional because they wrote language addressing that flaw. But Shirey said there are multiple grounds for filing suit against the state.

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