Jul 1, 2009 1:42 am US/Pacific
No Budget For California To Avoid IOUs
SACRAMENTO (CBS 5 / AP) ―
Reporting-
Click to enlarge - California Senate President pro Tem Darrell Steinberg listens to arguments during a session of the California State Senate.
Justin Sullivan/Getty Images
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A desperate effort late Tuesday night by Democrats to push through a stop-gap measure of three bills worth $3.3 billion dollars failed to get enough votes. If it had passed, Democrats said it would have staved off the issuance of state IOU's for several weeks.
State Sen. Abel Maldonado was absent during several calls for votes late Tuesday night.
Maldonado, a moderate Republican who voted earlier this year with Democrats to solve an earlier budget crisis told CBS 5 that he would not vote for the stopgap measures, declaring "we need more cuts on this budget."
The Senate shut down for the night after the failed votes, but was scheduled to meet again Wednesday to try and finish its work on the budget.
Later this week, the state Controler's Office plans to issue "IOU warrants" instead of checks in some cases. The last time that happened was 1992.
The IOU's look like regular checks but will be post-dated for Oct. 1. Some banks will cash the checks and wait to get the money from the state. Other banks will make business owners wait until Oct. 1 to cash them.
Brian Beery, who runs American Transit Supply in Hayward, provides filters to state cars, trucks and industrial equipment. As of Thursday, his company will be one of thousands likely to get IOU's instead of checks.
Also affected: taxpayers who were expecting refund checks. Those won't be paid. Neither will college students who get financial aid through Calgrants. California will also stop contributing its share of social security checks, the Controller's Office said
The federal government will pick up the state's share of SSI and SSP payments for two more months until Aug. 1, officials said.
"With no money coming in we'll be down to where we have to really cut expenses and potentially headcounts," said Beery.
Voting largely along party lines, the Senate rejected the three bills designed to save $5 billion, including $3.3 billion in education funding cuts that had to be enacted by midnight Tuesday. The new fiscal year started Wednesday.
Senate President Pro Tem Darrell Steinberg, a Sacramento Democrat, called Republicans' refusal to vote for the measures "an irresponsible position to take."
At least two Republican votes were needed to put together the two-thirds majorities required to approve the legislation, which passed the Assembly last week with bipartisan support.
The action Tuesday followed the same pattern as two unproductive Democratic attempts Monday to resolve the budget problems. Both failed to draw support from Republicans.
Voting almost totally along party lines Monday, the state Senate approved a package of bills featuring spending cuts and increases in fees and taxes to close the deficit.
Republican Gov. Arnold Schwarzenegger quickly promised to veto the legislation, saying he wouldn't sign anything that raised taxes or fees beyond what he has already proposed.
"They should forget about that," he said, accusing Democrats of going through a "song and dance. Let's get to work, fix it."
The stopgap spending bills failed in the Senate when Republicans objected that the budget problems need a comprehensive solution focusing on spending cuts. All three bills had passed the Assembly last week with bi-partisan support.
The stop-gap bills, unlike the measures in the full Democratic budget plan, needed two-thirds majorities, and some Republican votes, to pass.
Schwarzenegger's office said the governor did not want the partial fix the Democrats were proposing to delay the IOUs. Aides said he believed it would let lawmakers off the hook and make it more difficult to close the entire deficit in the weeks ahead.
One difficulty in reaching a compromise was Democrats' refusal to accept the deep cuts to college aid, children's health care and welfare programs contained in Schwarzenegger's budget proposal.
The governor had offered a compromise to those cuts Tuesday, offering structural reforms to state programs instead. He also proposed reducing state pension benefits for new hires, shifting enrollment for the state's health insurance for the poor online to reduce government jobs and requiring in-home caretakers to submit to fingerprint and background checks to prevent fraud.
He also wanted reforms to the state's welfare program. In all, those measures would save California $2 billion in the fiscal year that began Wednesday, according to his office.
"I think what people are frustrated with in Sacramento (is that) we always take the easy way out, never solve the entire problem," Schwarzenegger spokesman Aaron McLear said Tuesday. "He believes wholeheartedly that we cannot do partial solutions."
State Controller John Chiang had said he would have to start issuing the IOUs on Thursday unless lawmakers took steps to stem the state's red ink by the end of Tuesday.
California's deficit is roughly a quarter of the state's general fund and has been widening this year as tax revenue has plunged. That has left the state with too little money to pay all its bills.
Roughly $3 billion worth of IOUs will be issued in July unless a compromise on closing the deficit is reached quickly. They would be sent to state contractors, college students, welfare recipients, low-income seniors, the disabled and others who depend on or deliver state services. Counties will not get paid for social programs they administer.
Chiang said he would start issuing the pay-you-later warrants on Thursday.
"It's really incomprehensible, from our point of view, that the governor will allow the state to run out of cash when he has a bipartisan solution," said Assembly Speaker Karen Bass, D-Los Angeles.
California will not run out of cash immediately. While spending obligations will begin outpacing revenue without a balanced budget in place, the IOUs will delay a cash crisis until lawmakers reach a compromise, which would be expected sometime this year.
The state already has a budget in place for the 2009-10 fiscal year, thanks to a two-year budget package approved in February, but the spending plan is badly out-of-balance. The main culprit is the recession, which caused a 34 percent plunge in personal income tax revenue during the first five months of the year.
Democrats, the majority party in both houses, want to solve the deficit by cutting $11 billion in spending, raising the vehicle license fee by $15 to keep state parks open and increasing taxes on tobacco products and companies that drill for oil.
Schwarzenegger has proposed more aggressive cuts of $16 billion, including dropping health care for 930,000 low-income children and eliminating the state's main welfare program. He also would borrow $2 billion from local governments, take $6 billion from other government accounts, accelerate personal and corporate income tax collections, and cut state employee pay by another 5 percent.
In a sign of how the fiscal crisis is already hitting home, the board that oversees Healthy Families, which provides reduced-cost medical coverage to low-income children, voted Monday to close the program to new enrollment starting on July 17.
It would be the first time new applicants would be rejected since the program started in 1997, said Kelly Hardy, associate director of health at Children Now, a health care funding advocacy group.
She said Healthy Families received applications for about 30,000 children a month for a yearlong period ending in February up about 10 percent from the year before.
(© 2009 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)
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