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California's budget deficit projected to reach $21.3 billion

California's projected budget deficit has grown as large as $21.3 billion through next June because of a sharp economic decline, Gov. Arnold Schwarzenegger disclosed Monday in a letter to legislative leaders.

The latest projection means lawmakers will have to negotiate deep spending cuts in education, corrections and welfare as well as consider borrowing and new fees or taxes.

The announcement comes less than three months after the Legislature and the governor closed $34 billion of a then $40 billion state budget deficit with tax hikes and spending cuts and asked voters to eliminate the rest in next week's special election.

"Since that time, the severe economic downturn that California, like the rest of the nation, has been facing has worsened substantially," Schwarzenegger wrote. "These changes in the state's economic and revenue pictures have caused a significant new budget problem to emerge."

The Republican governor's Department of Finance has projected a budget gap of $15.4 billion if the May 19 special election ballot measures pass and $21.3 billion if they fail. The state would gain nearly $6 billion in solutions if Propositions 1C, 1D and 1E pass, including $5 billion in 1C's borrowing against the California Lottery.

The $15.4 billion figure is nearly double the $8 billion revenue shortfall the nonpartisan Legislative Analyst's Office projected in March. Since February, the state has collected $2.1 billion less than expected in taxes, while economic indicators and social service caseloads have increased.

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