This story was reported for San Diego News Network on July 6, 2009. This was the first installment of the popular “California Budget Crisis Diaries,” a blog maintained by Hoa Quach that drew numerous, regular readers throughout the state.
California’s leaders now have 40 days to pass and sign a balanced budget into law. Until then, I’ll be reporting what’s happening at the Capitol three times a week. With that said, here’s the first installment of California’s Budget Crisis Diaries on Day Five of the impasse.
While Californians were enjoying Fourth of July festivities this weekend, Legislators had little to celebrate. Here’s a breakdown of what happened while you were watching fireworks.
Deficit: As they failed to pass a balanced budget on June 30, the deficit grew $2 billion to $26.3 billion. However, Gov. Arnold Schwarzenegger’s office has said it will take out $1 billion from reserves – leaving the deficit at $25.3 billion (as reported by the wonky California Report).
It’s all political: State Assembly Speaker Karen Bass (D-Los Angeles) boycotted budget meetings on Monday, stating that Schwarzenegger wasn’t taking the budget negotiations seriously.
Schwarzenegger’s spokesperson, Matt David, immediately issued a statement saying her boycott would not change the budget problems.
“Speaker Bass can boycott budget meetings but it will not change the size of our deficit, the amount of cuts necessary, and it will not stop IOUs from going out. It is in California’s best interest for the Speaker to be engaged in solving our deficit.”
Bass and fellow Democratic leader Sen. Darrell Steinberg (Sacramento) met with Schwarzenegger for nearly three hours on Sunday to no avail on an agreement. The Republican Caucus is continuing its fight against more tax increases, as presented in the Democratic proposal. And, the Democrats continue to rally for fewer cuts.
IOUs: State Controller John Chiang began issuing $3.3 billion of IOUs last week, the first time the State had to take this action since 1992. Locally, Noah Homes is among one agency that relies heavily on the state for funding. Noah Homes, which is a home for San Diegans with developmental disabilities, expects an IOU of $185,000 while the agency runs on $220,000 a month.
Credit rating: Fitch Ratings lowered the State’s score from an A- to BBB, down two notches. The rating is a response to State leaders’ failure to pass a balanced budget by June 30. In addition, Fitch estimates the State to face these financial hardships through fiscal year 2010.
Proposed legislation: Assemblymember Joel Anderson (R-El Cajon) has proposed a bill that may ease the pain for those receiving IOUs. His bill, AB 1506, would allow agencies to use their IOUs to pay for state bills. This means, Noah Homes could use its $185,000 IOU to pay for state taxes, fees or licenses. No word has been made about how this bill would affect the state’s deficit.
Banks: Major banks such as Chase, Bank of America and others will accept the State’s IOUs until July 10. However, this exception is limited to existing customers only. In addition, the State Legislature passed AB X37 and the Governor signed the bill into law on July 1. The bill allows banks to redeem IOUs before October if a balanced budget is passed. The interest rate is 3.75 percent, as reported by The Associated Press.
Furloughs: Immediately after the failure of a passed budget, Schwarzenegger announced the order of one more furlough day per month for 235,000 State employees. According to The Sacramento Bee, this means an average pay cut of 14 percent for state employees who now have three furlough days a month.
The City of San Diego: Mayor Jerry Sanders held a press conference last week to express his thoughts on the state’s quandaries. The leader of the county’s biggest city said it won’t be getting IOUs but revenues such as the $24 million gasoline tax and $36 million in property tax revenue could be taken or borrowed from the State. However, Sanders said the League of California Cities will file a lawsuit against the state if it takes gasoline tax revenue. The borrowing of property tax revenue, however, would not be unlawful if the Legislature passes the suspension of Proposition 1A from 2004.
The County of San Diego: The Board of Supervisors, like Sanders, has expressed the pain the state may cause the County, as well. As reported in a recent SDNN budget story, the County may have to relinquish $70 million in property tax revenue to the state if Proposition 1A from 2004 is suspended. County CFO Don Steur said the State’s February budget included deferrals of payments to the County for the months of July and August. This, therefore, means the Supervisors factored that deferral in when implementing the County’s new budget.
Statewide, county governments are expected to receive $776 million in IOUs and will have to make $4.3 billion in cuts, according to the California State Association of Counties. The IOUs will mainly affect social services programs including: CalWORKs, Foster Care, Child Welfare and Adult Protective Services.
Want to include something in the Diaries? Let Hoa Quach, SDNN’s political editor, know. She can be reached at Politics(a)SDNN.com