This story was reported for San Diego News Network on July 10, 2009.
Legislators will spend yet another weekend at their chambers squabbling over how to balance the California budget. Since Day Seven, a former MIA assemblymember is back, IOUs are seeing (possibly) their last day of redemption, a couple of long-established battles have gotten hotter, California is transforming into Texas and more.
From now until August: On Thursday, analysts and state fiscal experts said lawmakers actually can procrastinate up until August or even longer.
Without a plan to balance revenue with spending, California will fall into the red in September, even with billions of dollars in IOUs going out. That will raise the possibility that the state will be unable to make contributions to its pension funds and will be forced to extend its IOUs to employee paychecks.
“It’s not a situation anybody’s happy to contemplate,” said Gabriel Petek, director of credit market services at Standard & Poor’s.
New figures: State Controller John Chiang released year-end figures on Friday. California began the fiscal year with a cash deficit of $1.45 billion, which grew to $11.9 billion on June 30. While, personal income taxes in June were $987 million below (-18.0 percent) estimates in the May Revision, and sales taxes were short by $154 million (-5.8 percent). In addition, corporate taxes were $1.31 billion above estimates (41.2 percent).
“California continues to pay for its history of unbalanced budgets,” Chiang said. “The State spent $10.4 billion more than it collected last year alone, and is now without enough cash to cover all of its payment obligations.”
“Our major sources of revenue have continued their trend downward, leaving no viable option but to craft a new budget that recognizes California’s recovery has yet to begin.”
Assembly Speaker Karen Bass: Bass (D-Los Angeles) is back in action after missing budget meetings because of her self-proclaimed frustration with Gov. Arnold Schwarzenegger. The caucus leader held a news conference earlier this week blaming Schwarzenegger for not taking the budget concession seriously. But Bass told Reuters that she is “hopeful” the Big 5 deliberations will resume Friday.
The Big 5 include Schwarzenegger, Sen. President Pro Tem Darrell Steinberg (D-Sacramento) and Republican minority leaders Assemblymember Sam Blakeslee (San Luis Obispo) and Sen. Dennis Hollingsworth (Murrieta).
IOUs: Friday is the last day IOU recipients can cash in their warrants at major banks. Chase, Bank of America, Wells Fargo & Co. said they will stop accepting the warrants after Friday. But according to Bloomberg, smaller community banks are struggling more with the warrants. A recent Bloomberg article highlights undersized banks that only do business in California and have little choice but to continue to accept the warrants in an effort to keep existing customers.
Marijuana: A pro-legalizing marijuana organization launched an ad on major television networks encouraging legislators to make the drug lawful. Marijuana Policy Project launched the 30-second pot ad on Wednesday claiming that legalizing the herb can generate nearly $1 billion of revenue. While the $1 billion idea may be appealing, Schwarzenegger (who mentioned the idea earlier this year) said he thought “it was the wrong direction to go” should it be based on simply generating money.
Teachers vs. Terminator: Another ad (see video) is catching the eye of the Governor. The California Teachers Association is grading Schwarzenegger tough in an ad launched Wednesday. The ad attacks Schwarzenegger for proposing to suspend $3 billion of funding to public schools. The proposal would alter Proposition 98 of 1998 that guarantees the cash to education. CTA, which represents 340,000 education employees, is asking that legislators consider tax hikes than cuts to education.
The new Texas?: While state Legislators are battling it out, people are talking about California becoming the new Texas and Texas becoming the next California. Economist editor Christopher Lockwood launched the debate in the magazine’s latest issue, stating that the high-taxes route California has taken “is prompting a net 100,000 people to leave each year. Many of them head for Texas.”
Lockwood adds that Texas is home to more Fortune 500 companies in comparison to other states and has even attracted construction company Fluor to move from California. Meanwhile, California simply seems to be falling behind.
University of California: University of California President Mark Yudof unveiled a furlough proposal Friday as part of his plan to address an expected 20 percent reduction in state funding.
Under his plan, most employees at the 10-campus system would see their paychecks reduced while receiving additional days off. Employees would see pay reductions ranging from 4 percent to 10 percent, with higher paid workers taking bigger pay cuts. The furloughs are expected to result in $184 million in savings to the university’s general fund budget.
The UC Board of Regents is scheduled to vote on Yudof’s plan when it meets in San Francisco next week.
The Associated Press staff and writer Judy Lin contributed to this report. Hoa Quach is the political editor for the San Diego News Network.