More than 180 cities have signed a resolution threatening to sue the California state government over its budget legislation. They seek to block the state from appropriating more than $4 billion in local property tax revenue and redevelopment funding to help close the state’s record deficit. 
California’s local governments already face a difficult fiscal environment because the weak economy has hurt property and sales tax revenues across the state. Many local officials resent the state’s revenue grab at a time when they are already making substantial budget cuts.
California’s Proposition 13, which restricts property valuations and tax increases, has also made it difficult for local governments and municipalities to raise revenue.
Despite the threats, California Governor Arnold Schwarzenegger says he will sign the package of legislation when it comes to his desk. The State Senate approved the measure on Friday.
The budget proposal would cut approximately $16 billion in spending, including substantial reductions in education spending. Yet these spending cuts would cover just 62% of California’s colossal $26.3 billion dollar deficit.
The proposal would also reduce the state’s deficit by delaying payments to many employees by one day so that they roll over to the next fiscal year. Though the accounting trick will save an estimated, $1.2 billion this year, it does little to secure California’s long-term financial outlook.
The state has already been forced to issue IOUs to many employees over the past week because it could not afford to pay them.
California is not the only state facing a difficult budget outlook. According to the Center on Budget and Policy Priorities, five states have yet to finalize budgets for 2010 and twelve others will have to adjust their budgets to cover new deficits.
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