California Budget Impasse Enters Fourth Month as IOU Option Looms Larger
California's Governor Arnold Schwarzenegger
SeongJoon Cho/Bloomberg
California today must pay $804 million for debt service and make a $621 million contribution to state pension funds, according to Schwarzenegger’s Finance Department.
California today must pay $804 million for debt service and make a $621 million contribution to state pension funds, according to Schwarzenegger’s Finance Department. Photographer: SeongJoon Cho/Bloomberg
California’s longest budget impasse entered its fourth month today as Governor Arnold Schwarzenegger and top lawmakers wrestled over pensions and corporate taxes to close a $19.1 billion deficit.
Reining in state retirement costs and providing tax breaks for businesses remain sticking points, aides said as legislative leaders emerged from a four-hour meeting at the Republican governor’s Sacramento office last night.
“We still have some issues that need to be resolved that are significant,” said Senate President Pro Tem Darrell Steinberg, a Democrat from Los Angeles. He said another meeting is scheduled today.
California, the largest issuer of municipal bonds in the U.S., hasn’t had a budget since the fiscal year began July 1. Controller John Chiang may decide as soon as next week on when he might begin issuing warrants, or IOUs, to conserve cash for priority bill payments such as debt service, aides said. It would mark the second year in a row he’s had to pay with scrip because of a budget impasse.
California today must pay $804 million for debt service and make a $621 million contribution to state pension funds, according to Schwarzenegger’s Finance Department. In August, budget officials decided to delay paying $2.9 billion of subsidies to schools and counties last month in order to make sure there was enough cash on hand to make payments due today.
Framework Settled
The governor and the Democratic and Republican legislative leaders, known as the Big Five, said Sept. 24 that they had agreed to a framework to end the budget stalemate. Talks stalled this week when they tried to hash out the final details on closing the deficit. Democrats control both legislative chambers in the state. Schwarzenegger, nearing the end of his time in office, couldn’t seek re-election because of term limits.
As negotiations faltered, Treasurer Bill Lockyer said Sept. 27 that he was lining up a short-term loan of more than $5 billion from a group of Wall Street banks to tide the state over with enough cash once a budget agreement was reached. He said the borrowing would be repaid with an estimated $10 billion of short-term notes the state will sell later this month or next. The state can’t issue the notes until it has a budget.
Lockyer has said that if the impasse lasts much longer, he may not have sufficient time to sell enough long-term bonds used to finance thousands of public works projects. That’s because of a self-imposed “dark period” in December and early January when he typically doesn’t sell debt while new economic data are prepared, along with a new budget proposal for the coming fiscal year. The governor must deliver the new spending plan to the Legislature in the second week of January.
Pension Issue
Schwarzenegger has said he won’t sign any spending plan unless lawmakers agree to roll back pension benefits for state workers to 1999 levels. The governor has suggested limiting state pension costs by requiring workers to contribute 5 percent more from their pay, pushing back retirement age, and basing benefits on the three years of highest wages instead of one.
Democrats have resisted Schwarzenegger’s demands. They have insisted such changes be made through contract talks with unions. Schwarzenegger has already brokered similar concessions with negotiators representing 35,000 California workers and is in talks with the largest group, the Service Employees International Union.
To contact the reporter on this story: Michael Marois in Sacramento at mmarois@bloomberg.net;
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.
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