Wednesday, June 24, 2009
SACRAMENTO - California Controller John Chiang warned Wednesday that the state would issue IOUs for the first time in 17 years starting next week unless the Legislature starts fixing an estimated $24 billion budget shortfall. Chiang's announcement came as a Democrat-crafted package of budget cuts failed on party-line votes, highlighting the Capitol's gridlock in solving the state's budget mess and avoiding a cash crisis in July.
Lawmakers are scheduled to be back in session this morning to try again. Legislative leaders told lawmakers to be ready for floor sessions throughout the weekend. Yet there were no signs Wednesday that lawmakers are anywhere close to an agreement on fixing the 2009-10 spending plan passed only four months ago. State revenue has nosedived since then and voters rejected several billion dollars in budget solutions. Wednesday's legislation contained about $11 billion in spending cuts. The Legislature's majority Democrats said they would oppose additional reductions to children's health, welfare-to-work, and in-home care programs. "We're the eighth-largest economy in the world. There is no excuse for us not being able to provide for our most vulnerable citizens," said state Sen. Denise Moreno Ducheny, D-San Diego, who represents part of Riverside County.
Republicans countered that the Democratic proposal would still leave the state spending billions more than it takes in. They also opposed higher taxes on oil and tobacco products that are part of a different bill that was not considered Wednesday. "You think we enjoy making cuts? You think we want to see little kids running around without shoes or food or anything like that?" said state Sen. Bob Dutton, R-Rancho Cucamonga. "The problem is that the way we've been going about this the last six or seven years wasn't the right way to do it," said Dutton, the Senate GOP's budget point person. Republican Gov. Arnold Schwarzenegger has proposed billions in additional cuts and the elimination of some health and welfare programs. The governor has vowed to veto the Democrat-crafted legislation if it reaches his desk. The governor's office said Wednesday's debate "has cost the state valuable time and pushed us closer to insolvency."
IOU ahead
Wednesday's budget votes were the first since all-night legislative sessions in February yielded $41.7 billion in higher taxes, spending cuts and borrowing as part of a spending plan that was supposed to take the state through June 2010. The state's budget problems won't go away. California's projected tax revenue has fallen by billions. Last month, voters snubbed $6 billion in borrowing and fund shifts assumed in the February deal.
The state now is on pace to run out of money by July 28. Treasurer Bill Lockyer and Chiang -- both Democrats -- and Schwarzenegger have called on lawmakers to fix the budget by the end of June to allow enough time to arrange short-term loans.
Chiang's IOU announcement adds another level of urgency in the standoff. The state has not issued IOUs since 1992. Chiang's office delayed some payments during a cash crunch earlier this year but the problem is much worse now, his office said. "We need to conserve cash in order to make all the payments at the end of July," controller's spokeswoman Hallye Jordan said.
Bond holders, schools, and some other state programs get first dibs on state money. The state cannot issue IOUs to state employees because of a court ruling after the 1992 IOUs. The IOUs would go to companies doing business with the state, local governments, and some other recipients of state money. They later would be repaid in full, plus interest.
Issuing IOUs likely would worsen the state's credit rating. That would make it more expensive, if not impossible, to borrow money next month and thereafter. "If the state starts issuing IOUs, the damage to our credit rating could be substantial and long-term. It could take years to recover," Lockyer spokesman Tom Dresslar said. State Sen. Gloria Negrete McLeod, D-Chino, said Republican lawmakers should support the Democratic plan and avoid the IOUs. If the Republicans don't feel it's enough, well, they don't have a plan," she said. "Somebody said this is like giving a starving man a hamburger and he doesn't want it because it doesn't have fries." I want to solve the problem. I'd stay here 24 hours a day if I have to if we actually solve the problem," (S)he said.
The prospects for healthcare reform may be chillier than DC weather, but Democrats in the House and Senate are turning their attention to another warmer but still significant national issue: the increasing number of runaway and throwaway youth who are being forced into prostitution. In response to the growing concerns that desperate, runaway teens will be forced into prostitution in a sluggish economy, Congress is pushing several bills to improve how runaway kids are tracked by the police, fund crucial social services, and prevent teens from being caught in sex trafficking. Here's the gist of what the new legislation is trying to accomplish:
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