California budget threatens governor

By Steve Schifferes BBC News Online, Washington

California is facing the biggest budget crisis in its history as legislators have until midnight on Monday to balance a $38bn (£22.8bn) deficit - equal to one-third of total state spending.

The governor of California faces a showdown

California's economy boomed in the 1990s on the back of the dot.com bubble centred in San Francisco's Silicon Valley.

Now the fall-out from that bubble has thrown the state government into chaos and may threaten the position of Governor Gray Davis himself.

California is also the home of the tax revolt - and California's Republican legislators are refusing to go along with a Democratic plan to raise sales taxes as well as cutting spending to balance the books.

There's a real chance for a meltdown that could have rippling effects throughout the nation

James Kyser, economist

Although Democrats control both houses of the legislature, they cannot pass a budget without Republican support because they need a two -thirds majority.

"They are putting important state programmes at risk just out of pure political spite," said Roger Salazer, an advisor to the governor.

But the Republican leader in the state senate, James Brulte, said that "somebody had to stand up and say enough is enough. That's what we are doing."

Meltdown

If California fails to agree a budget, the consequences could be serious for the state's economy - and the nation's.

By law, as early on Tuesday billions of dollars in state contracts and payments to medical providers, private companies and state agencies will be stopped.

"This is going to be a real hurt for the state of California," said state controller Steve Westly.

Already, colleges, nursing homes, and state welfare facilities are closing, refusing new patients, or raising fees.

And 10,000 state employees have been laid off.

California has so far cut $12bn in services, and borrowed $11bn to keep going, and raised $4bn in taxes, but its credit rating is so low it will probably be unable to borrow any more until it passes a budget.

"There's a real chance for a meltdown that could have rippling effects throughout the nation. This is something of a different magnitude than we've seen before," said economist Jack Kyser.

California's $1.3 trillion economy, the largest in the United States, is the size of the UK's, and government cutbacks could make the recession in the state even worse.

Recall crisis

The failure to resolve the budget crisis, and the combination of higher taxes and cuts to services, has undermined the popularity of the Democratic governor, Gray Davis, who was just re-elected last November.

Another actor for governor?

There is now a growing campaign to recall the governor and force an election for a new one in November - something allowed by California's progressive-era constitution.

Republicans say they are nearly half-way towards collecting the 900,000 signatures they need by September to force a recall ballot.

On Friday, President Bush met Republican Representative Darrell Issa, the wealthy businessman largely bankrolling the recall effort.

None of the 17 recall campaigns have succeeded so far, but with less than 30% of the electorate satisfied with the governor's performance, experts say that this one has a good chance of success.

Under California law, if the governor is recalled, voters also have to vote for a new governor at the same time.

Actor Arnold Schwarzenegger is a leading candidate to run for the Republicans, while Democratic Senator Dianne Feinstein might be forced to step in for the Democrats.