California set to enter fourth month without a budget, endangering bonds, cash flow, vendors

Calif. set to enter fourth month without a budget

SACRAMENTO, Calif. — Gov. Arnold Schwarzenegger and legislative leaders went a second day Wednesday without meeting about the state’s tardy budget as California begins jeopardizing public works projects and contemplates issuing IOUs again to people owed tax refunds.

The top lawmakers from the Assembly and Senate planned to meet with Schwarzenegger no sooner than Thursday, the last day of the fiscal year’s first quarter.

They had no top-level meetings Tuesday or Wednesday to resolve the state’s $19 billion budget deficit, after saying last week they had reached the “framework” of a deal and just needed to hammer out a few details. Aides to the governor and legislators said the leaders cannot agree on rolling back public employee pension benefits.

That leaves state Controller John Chiang to decide next week if California will run out of cash to pay its bills, as the lack of a budget prevents him from cutting checks to thousands of state contractors.

“That’s what we’ve been talking about, is IOUs. That’s also what we’ve been trying to avoid,” said spokeswoman Hallye Jordan.

Chiang will make his decision based on September cash flow figures expected next week. He previously said the state might have to begin handing out IOUs in mid-September, but that was delayed by higher revenue and lower spending in August than had been expected.

Thousands of vendors are owed nearly $3 billion for the first three months of the fiscal year, according to Chiang’s office, but they won’t even get IOUs until a budget is approved. That’s because state law prevents any sort of payments — even IOUs — without an appropriation from the Legislature, Jordan said.

That’s different from last year, when vendors were paid in interest-bearing IOUs for just the second time since the Great Depression, because the state had a budget but simply ran out of cash.

Until a budget is in place, the pay-you-later warrants would be used, under the law, to pay lottery winners, people owed tax refunds, workers compensation claims and some child development benefits, Jordan said.

Next week is also the practical deadline for the state to begin the process of borrowing $7 billion to fund construction of highways, schools, courthouses, and flood levees this fall, said Joe DeAnda, spokesman for Treasurer Bill Lockyer.

The state needs a budget before it can seek about $10 billion in tax revenue anticipation notes, and then the $7 billion in general obligation bonds. Each process takes three to five weeks, and must be done in sequence. And the state can’t issue the bonds during a “blackout period” that runs from about Thanksgiving until California’s next governor proposes a budget in January.

“You can look at the calendar and see that’s getting tight,” DeAnda said. “If nothing happens by next week, it’s really going to make it difficult for our office to access the market. We really risk shutting down all the infrastructure projects and the public works projects and all the hundreds of thousands of jobs that are associated with that.”

On Friday, 90 days into the fiscal year, U.S. Bank can suspend the state’s CalCard and Voyager credit cards for nonpayment, said Department of General Services spokesman Eric Lamoureux. The CalCard is used for buying supplies and other routine purchases, while the Voyager card is used to pay for gasoline for the state’s fleet.

U.S. Bancorp spokeswoman Teri Charest could not say if or when the bank would shut off the state’s credit.

The lack of a budget means schools, counties and thousands of state contractors have gone unpaid since the fiscal year began July 1.

“We’ve never gone to 90 days plus,” said Greg Stagnitto, president and CEO of Highland Wholesale Foods Inc. “There’s a breaking point somewhere along the line.”

He said his 10-year-old Stockton-based company is owed more than $1.5 million for the canned fruits and vegetables, peanut butter, sugar and other staples it supplies to California prisons.

He is used to late budgets but said he’s particularly frustrated this year because there seems to be little sense of urgency as the November election approaches.

“I think they’re really going to dump this mess in the lap of the new governor … and meanwhile we don’t get paid,” Stagnitto said. “God help us if it goes to January.”