Borrowing $23.3 billion for state budget won’t be easy, analyst says

California may find it hard to borrow the $23.3 billion that Gov. Arnold Schwarzenegger has proposed to ease the state’s financial crisis, the Legislature’s nonpartisan analyst said Thursday.

The spending plan Schwarzenegger outlined Dec. 31 for the next 18 months relies on borrowing $5 billion against future state lottery earnings, $7 billion in new infrastructure bonds and $11.3 billion in short-term borrowing so that the state does not run out of money.

Schwarzenegger has depicted his proposal, which he intends to formally submit to the Legislature today, as the only financially responsible solution to a budget gap estimated to reach $41.6 billion by the middle of next year.

But Legislative Analyst Mac Taylor questioned the degree of borrowing Schwarzenegger is requesting, given the turbulent credit markets and investors’ shaky faith in the ability of California lawmakers to fix the state’s fiscal problems.

“There is major uncertainty about the state’s ability to access the capital markets for anywhere close to this volume of financing over the next 18 months,” Taylor wrote in his report.

Taylor said it was not clear whether it would be legal to use short-term debt to balance the state’s budget, as the governor has proposed. He also noted that voters would need to approve the lottery plan, necessitating a special election, preferably in the spring.

H.D. Palmer, a spokesman for Schwarzenegger’s Department of Finance, did not dispute those concerns.

“We said straight up that this kind of cash flow borrowing is going to be very difficult,” he said.

Voters have already approved the infrastructure bonds. The governor wants the state to speed up some of these projects to create more jobs for the ailing economy.

Taylor praised the governor’s overall plan as “a good-faith effort” and urged Schwarzenegger and lawmakers to act immediately.

“The time available to achieve current-year savings has shrunk,” he wrote, “and cash problems have worsened to the point that the state may not be able to pay all its bills beginning next month.”

Sacramento has been at a political impasse since the fall, when the governor called lawmakers back to Sacramento following their adjournment. He has been calling for increasing the sales tax by 1 1/2 cents and expanding it to a number of other services. He also has proposed a tax on oil extraction and an increase in the alcohol tax.

But Republican lawmakers have refused to agree to any new taxes, while Democrats have refused to erase the budget gap with spending cuts alone. Democrats last month passed their own budget that would cut spending and raise taxes though a series of maneuvers intended to skirt the state rule that tax increases require a two-thirds vote of the Legislature.

The governor vetoed the measure Tuesday, saying it did not include everything he wanted to speed up state public-works spending. The governor called Republican leaders back into negotiations Thursday, but there were no breakthroughs.

State Controller John Chiang has said the state could run out of cash within weeks, and he may begin delaying tax refunds, student grants and vendor payments by Feb. 1 if lawmakers do not resolve California’s fiscal problems by then.

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jordan.rau@latimes.com

patrick.mcgreevy@latimes.com