California 'faces budget crisis'

The governor of California, Arnold Schwarzenegger, has declared a fiscal emergency, amid fears the state could run out of cash by early next year.

He has ordered lawmakers to hold a special session to tackle the $11.2bn (£7.5bn) deficit in California, one of the world's biggest economies.

Across the US, state tax revenues are down because of the economic slump.

State governors are to meet President-elect Barack Obama later on Tuesday to press the case for federal help.

Governor Schwarzenegger on Monday invoked powers allowing him to declare a fiscal emergency as the new state legislature was sworn in.

"Without immediate action, our state is headed for a fiscal disaster," Mr Schwarzenegger said, saying that the current $11.2bn shortfall could swell to "a staggering $28bn" over the next 18 months.

"I compare the situation that we are in right now to finding an accident victim on the side of the road that is bleeding to death," the Republican governor told a news conference in Los Angeles.

"We wouldn't spend hours debating over which ambulance we should use, or which hospital we should use...No, we would first stop the bleeding, and that's exactly the same we have to do here."

He said the state was already drawing up plans to lay off public employees.

Spending cuts

Under the fiscal emergency, lawmakers have 45 days to pass legislation addressing the budget crisis. If they miss the deadline, 15 January, they have to stay in session without considering any other business until agreement is reached.

The previous state legislature failed to reach agreement on a series of spending cuts and tax increases.

However, the elections in November produced little change in the legislature's political make-up, with the Democrats three seats short of the two-thirds majority needed to pass fiscal measures.

"It's our job as legislators with working the governor to try to make a major dent in the problem, and we can only do so by cutting expenses and by raising addition revenue," the Senate president, Democrat Darrell Steinberg, told the BBC.

But Republicans indicated their continued opposition to both Mr Schwarzenegger's and the Democrats' proposals.

"This is not blind ideology on the part of Republicans, but our sincere belief that higher taxes will hurt the economy and lead to more uncontrolled spending," Republican minority leader Mike Villines said.

Governors from across the US are set to meet Mr Obama later on Tuesday in Philadelphia to discuss ways of tackling the budget shortfalls many states are experiencing.

"Without federal help...what we will have to do is just make continuing cuts and/or raise taxes, both of which would have further deleterious effect on our states' economy. We simply need help," Pennsylvania Governor Ed Rendell said.

But as he left for the National Governors' Association meeting in Philadelphia, Mr Schwarzenegger said he would not be asking for federal help until California's lawmakers addressed the budget crisis.

"The federal government shouldn't give us a penny until we straighten out our mess and we can live within our means," he said.