Analyst: California faces $28 billion deficit

updated 8:10 p.m. ET Nov. 11, 2008

SACRAMENTO - California's budget deficit will grow to $28 billion through June 2010 unless lawmakers take bold action, possibly including a hike in the state income tax, the Legislature's nonpartisan analyst said Tuesday.

The Legislative Analyst's Office urged lawmakers to act immediately on Gov. Arnold Schwarzenegger's proposals to close the deficit for this fiscal year, projected at $11.2 billion — about 11 percent of the state's general fund. They include a 1.5-cent sales tax increase and $4.4 billion in across-the-board spending cuts.

The Schwarzenegger administration had projected a $24.5 billion hole for the rest of this fiscal year and the one that runs from July 1, 2009, to June 30, 2010.

But the analyst's office estimates tax revenue will be even lower than the administration expected.

The revenue collapse is so bad that if lawmakers did nothing, the state would face $22 billion shortfalls each year from 2010 to 2014, the analyst's report said.

"With the expected slow recovery of the state's economy, it is imperative that the Legislature attack the grim budget problem aggressively, making permanent improvements to the state's fiscal outlook," wrote Legislative Analyst Mac Taylor.

He said the governor's proposals would address only about half the state's long-term problems.

Taylor proposed raising the state income tax by 5 percent for all taxpayers in 2009. Another option is to boost the licensing fee on vehicles, which Schwarzenegger cut when he took office in 2003. That action cost the state about $6 billion a year.

Lawmakers scheduled a budget hearing Friday to debate the governor's proposals. The legislative session ends Nov. 30.

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