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California Struggles with Budget, Political Crisis - 2003-07-04

California officials hope to solve a budget crisis that is threatening the state's credit status, as local officials appeal to divided state leaders to find a solution. A recall effort against the governor is adding to instability in the state.

Wednesday, California's twin political and financial crises led to warnings from two Wall Street ratings agencies, with Standard & Poor's, placing the state on the on a "negative credit watch" and Moody's Investors Service also reviewing the status of more than $30 billion of state debt.

The warnings came as Los Angeles city leaders were urging state officials to solve a fiscal crisis, which mayor Jim Hahn says threatens local services like fire and police protection.

"We understand they have a difficult problem, but we also know that they know what it means when you cut local government. You're cutting public safety," he said.

California Governor Gray Davis is trying to negotiate a solution to a $38 billion budget deficit, but his fellow Democrats are resisting spending cuts, and Republicans are opposing higher taxes. The governor says the Wall Street warnings could prod the lawmakers to reach an agreement.

But the effort is complicated by a campaign to force Mr. Davis from office through a recall provision in the California constitution. The governor's opponents say they have collected the needed 900,000 signatures to place a recall measure on the ballot.

The governor's Democratic supporters say they have collected more than one million signatures on a petition of their own opposing the recall.

Davis supporter Don Terry made the announcement.

"The individuals who signed these petitions were not all Democrats," he said. "They don't all love the governor, and they don't all hate his persecutors. They signed because they want to send a message to government to stop bickering and start working."

The pro-Davis petition has no legal impact, and the recall measure seems to be well on its way to ballot. It would allow California voters to decide the governor's fate, either later this year or next March.

No one is predicting a swift end to the budget crisis, and Democrats complain that Republicans have no incentive to solve it because a solution would only help the governor.

Some Republicans, meanwhile, worry that the Republican-backed recall could backfire in a state where Democrats outnumber Republicans. If Mr. Davis is removed, he could possibly be replaced by a more popular Democrat.