California Gov. Arnold Schwarzenegger said he will veto a $145 billion spending plan approved by lawmakers on Tuesday, saying it doesn't guard the state against future budget shortfalls.
Schwarzenegger, a 61-year-old Republican, said the Legislature failed to include a provision setting limits on the amount of rainy-day fund withdrawals and when they may occur.
A veto continues a record-setting impasse that has left the most populous U.S. state without a budget 11 weeks into the fiscal year. Lawmakers broke their stalemate after Democrats backed off plans to increase taxes to close a $15 billion gap. The Legislature approved a spending plan that instead forces taxpayers to lend the state money through accelerated payroll withholding and slashes business-tax breaks.
"The budget they passed takes our problems and makes them even worse," Schwarzenegger told reporters in the Capitol in Sacramento. "This just kicks the can down the alley. I will not sign a get-out-of-town budget."
No governor in California has ever sent a budget back to lawmakers, who could conceivably override it with the same two-thirds vote threshold they mustered to pass the spending plan. The Legislature last overrode a veto 29 years ago.
Schwarzenegger said he would veto hundreds of bills awaiting his signature if lawmakers attempt to override his budget rejection.
The approved budget shifts 10 percent more of taxpayers' paychecks into state coffers through income-tax withholding, providing $1.6 billion. It also suspends the net operating loss deduction companies can claim when they don't report a profit and temporarily halves the tax credit for research and development.
Schwarzenegger has insisted that any budget compromise include a cap on future spending, a mandatory reserve fund financed with 3 percent of revenue each year and the authority for governors to cut spending at mid-year without legislative approval.
The approved budget included some of those provisions, though Schwarzenegger said they didn't go far enough. Those provisions would require approval from voters.
The spending plan also requires limited liability corporations to remit business fees earlier, and would force businesses to make larger estimated tax payments sooner in the year. It also asks voters to approve selling $5 billion of bonds backed by the state's lottery, money that would be used to balance next year's budget.
Even with that money, the new budget leaves the state with a $1.5 billion shortfall in the coming fiscal year that begins July 1.
Until the impasse ends, the state can't move ahead with a scheduled $10 billion offering of revenue anticipation notes, a type of one-year loan commonly used by states and local governments to pay bills until tax revenue arrives later in the year. Bank of America Corp. and Goldman Sachs Group Inc. are to manage the note sale.
State finance officials have been saying for months that if the stalemate continued much longer, the state would have to borrow cash through revenue-anticipation warrants, a longer-term loan that may cost at least $400 million more than the notes.
The $10 billion note sale would be the largest since Schwarzenegger took office in November 2003. The state borrowed $7 billion through short-term notes last October.
California, the biggest borrower in the municipal-bond market, has $51 billion in general-obligation debt outstanding. The state is rated A+ by Fitch Ratings and Standard & Poor's, the fifth-highest rankings, and a comparable A1 by Moody's Investors Service.