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Gov. Arnold Schwarzenegger has revised his previous estimated budget shortfall of $11.2 billion to $14.8 billion for the fiscal year. California’s budget deficit now predicted to hit $41.8 billion within 18 months.

Schwarzenegger attributes the deficit to the collapsing economy. Sales throughout the state have plummeted as has both personal and corporate tax revenues. The governor declared that California is “heading towards a financial Armageddon…By the end of February, we’re going to run out of cash, which means that we have to pay our bills with IOUs.”

S&P responded by downgrading $5 billion in revenue bonds recently issued by the state and has place $50 billion more on downgrade watch.

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