Print this Article

Budget Wrangling Continues, State Readies IOUs

By Jeff Hudson - June 26, 2009

The Democratic legislative majority, the Republican legislative minority and Gov. Arnold Schwarzenegger continued to maneuver this week for the upper hand in the long-running three-way stalemate over California’s budget.

But with the clock ticking, and State Controller John Chiang warning that he may be forced start issuing IOUs to pay most of the state bills unless a deal is made by July 1, a budget compromise did not appear imminent – at least not on Thursday afternoon.

On Wednesday, the Democrats’ most recent budget proposal (discussed in last week’s EdBrief) came up well short of the two-thirds majority required for passage in the Assembly and the Senate.  One critical component of the package – a bill that would have cut $11 billion from a wide spectrum of state programs – not only failed to attract a single Republican vote, three Democrats also voted “no.”  They were Sen. Leland Yee (D-San Francisco), Sen. Lou Correa (D-Santa Ana) and Assemblyman Sandré Swanson (D-Alameda). Yee said he voted “no” because the cuts were “too deep,” while many Republicans felt the cuts didn’t go far enough.

“Democrats’ budget-balancing plan crashes and burns” was the headline in the Sacramento Bee.

On Thursday, the legislators worked on a trio of bills designed to buy time by freeing up cash, with the idea of avoiding state-issued IOUs.  The Assembly passed two measures in this legislative passage by unanimous votes (69-0 and 54-0), reflecting a now-rare measure of at least partial bipartisan support.

But Governor Schwarzenegger issued a terse statement saying he’d quickly reject any such bills.  “Since the first day we began working to solve this $24 billion deficit, I have been clear: the legislature must solve the entire deficit, must make the hard decisions now, and must not ask California taxpayers to foot the bill,” the Governor said. “The current proposal in the legislature amounts to nothing more than a piecemeal proposal and a second day of drills and if passed, I will veto it because it doesn’t solve the problem.”

Senate President pro Tem Darrell Steinberg said the legislature will keep trying to find a formula that would be acceptable to his party, the Governor, and the Republican legislators. “I am very concerned and speaker as well that we get this done by July 1. We’ll work every day to get it done by July 1,” Steinberg said.

Steinberg indicated that he feels the Republican legislators don’t really even have a plan. “Where are their alternatives?  And do they have the votes for such an alternative?” Steinberg asked rhetorically.

Steinberg also stressed that time is running out, for both political parties. “This is serious business. If their position is that they do not want the state to go to IOUs, we need to see how they would make up the magic number of $24 billion” in budget reductions and/or revenue increases to bring the state budget into balance.

“We will be back on our floor Friday, and over the weekend if necessary in order to try to get to a resolution,” Steinberg said. “I haven’t stated any absolutes – with one exception. We’re not eliminating health care for 950,000 kids, we’re not eliminating college scholarships for 100,000 young people, we’re not eliminating the most effective assistance-to-work program that exists in state, we’re not eliminating in-home care for people who might end up in nursing homes.”

“And if you think we’re going to blink, I actually have toothpicks holding my eyes open,” Steinberg quipped.

State Controller John Chiang and State Treasurer Bill Lockyer, both Democrats, issued a statement calling for a compromise to head off the looming possibility of state-issued IOUs.

“We repeatedly have asked the Legislature and Governor to fully close the State’s budget deficit as quickly as possible,” Chiang and Lockyer wrote. “But regardless of the ultimate steps the Legislature and Governor take, they can and must immediately inject cash into the State’s depleted coffers.  It’s true the measures before the Legislature do not solve the entire problem.  But they do solve our most urgent problem.  Failure to act will expose taxpayers to substantial, long-term damage.

“There is no need to hold these measures hostage pending a full budget settlement.  Their enactment is inevitable, and quick approval of these payment deferrals and reductions will provide sufficient cash to avoid issuing IOUs starting July 2,” Chiang and Lockyer continued.  “If the State is forced to issue IOUs instead of paying its bills on time, the consequences will be immediate and long lasting.  It will greatly increase the cost and difficulty of completing essential cash flow borrowing in the next few months.  And it will undermine, perhaps for years, California’s ability to sell its long-term general obligation bonds.

Editor's Note: Jeff Hudson is the editor of EdBrief and an award-winning education reporter and writer in print, radio and television media.