This story was reported for San Diego News Network on July 8, 2009.
A deepening deficit and ravaged credit rating, a missing (or not) assemblymember and now Craigslist? Yup, things can change like that in the Golden State in just two days. Here’s a recap of what has happened and is happening on Day Seven of the budget impasse.
Deficit: The deficit remains at $25.3 billion (Keep in mind that other reports say $26.3 billion, however, Gov. Arnold Schwarzenegger said $1 billion is being taken out of reserves – this takes the number down to $25.3 billion). Leaders estimated that everyday that passes without a balanced budget, the State government falls $25 million deeper in the hole.
Assembly Speaker Karen Bass: The Democratic leader from Los Angeles has not participated in budget meetings as, she said, Schwarzenegger is not taking the problem seriously.
“The Governor continues to put demands on the table that are unrelated to closing the deficit,” Bass said Monday. “What is most important right now is that we close the deficit.”
Bass said some of his demands included reforming the pension system and having a new computer system.
Schwarzenegger’s spokesperson Matt David responded to her boycott, simply stating it was “In California’s best interest for the Speaker to be engaged in solving our deficit.”
The meetings, touted as the Big 5, have included only four leaders: Schwarzenegger, Sen. President Pro Tem Darrell Steinberg (D-Sacramento) and Republican minority leaders, Assemblymember Sam Blakeslee (San Luis Obispo) and Sen. Dennis Hollingsworth (Murrieta).
Credit rating: Fitch Ratings lowered California’s credit rating to “BBB” from an “A-“on Monday. It’s expected that Standard & Poor’s and Moody’s Investor Service will lower the Golden State’s ratings too.
SDSU finance professor Dan Seiver said it’s unlikely that California will be able to redeem its credit rating score for a couple years.
“A credit rating is like a reputation. It’s easy to lose it and it’s hard to get it back,” Seiver said. “That’s like asking, ‘How long will it take for Sanford of South Carolina to get people to believe anything he says again?’
“It’s going to be a long time.”
Federal bailout and State responsibility: Although the Obama Administration has said they will keep a distance from California’s budget problems, the state’s fiscal mess is too large to escape, said Seiver.
As the world’s eighth-largest economy with continuing problems in sight, Seiver said the Obama Administration may change its mind as days pass.
However, the finance professor goes on, the biggest issue is state legislators simply taking responsibility.
“I think they [the Obama Administration] could change their mind but we shouldn’t play that chicken game,” Seiver said. “The realistic plan is involves fiscal responsibility. Even if we pass a budget for this fiscal year, the next fiscal year will be difficult too.”
Craigslist: The Web site will never leave our daily lives – even when it involves
our government. As IOUs are being released from the State Controller’s office, ads to purchase those IOUs are popping up on the popular Web site (see ad).
Investors are taking full advantage of California’s problems by purchasing the IOUs at face-value from cash-strapped state agencies while holding on to the bond for a 3.75 percent interest rate, which can be redeemed as early as October.
State Treasure Bill Lockyer said the only law the trade of ads is that bond holders most prove that they are the legal owners of the IOUs. Promissory notes can simply be made with a notarized document from the payee and payer.
Proposed legislation:
A bill proposed by Assemblymember Joel Anderson (R-El Cajon) passed the Assembly Business and Professions Committee unanimously. AB 1506 allows IOU holders to pay state fees with the money owed to them by the State.
The 10-member-committee passed the bill unanimously with one Democratic Assemblymember requesting to be a co-author of the bill.
“I would like to compliment you (Assemblyman Anderson) for your thoughtfulness in approaching this subject,” said Assemblyman John Pérez (D-Los Angeles).
Anderson responded by saying he was “grateful for the support” from his colleagues. He presented the bill at Noah Homes on Monday, a center for San Diegans with developmental disabilities that received an IOU of $185,000.
It was not immediately known when the bill will go to the full assembly for a vote.
Hoa Quach is the political editor for the San Diego News Network.