Schwarzenegger Drops $2 Billion State Loan Proposal From CalPERS

(September 16, 2010) — After a three-hour talk with top lawmakers, Republican Governor Arnold Schwarzenegger’s idea of borrowing from the $205.5 billion California Public Employees’ Retirement System (CalPERS) was dropped from the negotiating table, Reuters is reporting.

“We still are where we were, we have a $19 billion deficit,” said Schwarzenegger spokesman Aaron McLear, according to the news service.

“Any idea to borrow money from the CaPERS pension fund is off the table,” Schwarzenegger confirmed in a statement late yesterday. “The Legislature must pass a budget that lets us live within our means, and includes the necessary reforms to fix our broken budget process and rein in out-of-control pension costs.”

The governor and lawmakers have disagreed on the amount of cuts to make and whether to adopt new taxes as the economic downturn wears down state revenues. The $2 billion from CalPERS originally proposed by Schwarzenegger would be an advance on the roughly $74 billion the governor estimates the state would save during the next 30 years from his proposals to roll back pension benefits for government workers.

Today, California broke its record for the longest period that the state Legislature has gone without approving a new state spending plan. With California still lacking an accepted budget, negotiators have been considering alternatives to generate savings, such as borrowing or deferring payments. Since the beginning of the fiscal year on July 1, Republicans and Democrats have lacked a solution over whether to use higher taxes or spending reductions to lower the state’s deficit, and analysts expect the delay over a spending plan to last several more weeks. The governor has refused to sign any final budget unless it’s accompanied by legislation to permanently cut the state’s cost to finance workers’ retirement benefits.