With the Governor and the legislature still no closer on a special session solution on the budget, Controller John Chiang issued a strong warning about the very near future, finally bringing public the possibility of IOUs for state vendors:
"Specifically, my office will be forced to pursue the deferral of potentially billions of dollars
in payments and/or the issuance of individual registered warrants, commonly referred to as IOUs," Chiang said in a letter to the governor and other officials.
"In order to ensure that the State can meet its constitutionally required obligation to schools and debt service, the Capitol's budget paralysis may leave me no choice but to, in full or in part, withhold payments or to issue IOUs to other individuals and entities entitled to state payments. Given the current financial instability of the banking industry, it is highly unlikely that the banks, if they accept the IOUs at all, will be able to do so for any sustained period of time. Consequently, the recipients of the registered warrants may have no apparent options but to hold them until redemption."
Chiang said his office is also pursuing the issuance of "revenue-anticipation warrants," a form of short-term borrowing that carries high interest and heavy fees because it's believed that the state cannot issue "revenue anticipation notes" that would have to be repaid by June.
If it was impossible to sell revenue anticipation notes to lenders, I don't see why they'd accept revenue anticipation warrants, even if they offered the promise of higher interest rates.
It goes without saying that this stalemate, and the prospect of eliminating vital services, comes at the worst possible time, when California's most at-risk citizens need a social safety net the most. The California Budget Project detailed this today in a paper, appropriately titled Proposed Budget Cuts Come at a Time of Growing Need.
More Californians are turning to income support and related programs, such as Food Stamps, WIC, Healthy Families, Medi-Cal, and CalWORKsfor assistance.
Increased demand for public programs comes at a time when policymakers have proposed deep cuts to health and human services programs to close the state's budget gap.
However, prominent economists argue that carefully chosen tax increases are preferable to spending cuts during a recession because "steep budget cuts will exacerbate the economic downturn and harm vulnerable low-and moderate-income"families.
With unemployment rising to the third-highest rate in the nation, with one in five Californians out of work for longer than 27 weeks, with projections of the unemployment rate rising over 9.3% by 2010, with almost a million Californians underemployed (working less than they'd like), with applications for food stamps up 33% over the past year, and with every county in the Central Valley experiencing double-digit unemployment, including an incredible, depression-era 23.4% unemployment in Imperial County in Southern California, the prospect of losing vital services to those affected would be absolutely devastating. And yet that's where we are. County governments are already expecting the worst, to have their funds raided by the state to eventually fill the budget hole, so they're cutting back. The self-sustaining cycle of cutbacks creating job loss creating less revenue creating more cutbacks has already begun. And that's why it's not just bad politics but horrible policy for Schwarzenegger to hold the state hostage for extremely marginal rewards that will almost certainly be overturned once he's out of office anyway. His intransigence, perhaps based on his inability to get anyone in state government to listen to him, is puerile nonsense. But it also really hurts people.
As I've said continuously, the budget mess in California cannot be solved under the current broken system without serious help from Washington. Fortunately federal lawmakers are fighting for state and local government relief for California, done in such a way that we can actually access it without having to put money up front (which is impossible given the current cash-flow crisis).
(As a side note, I want to on behalf of the editorial board thank our friends in the blogosphere for driving attention to our ongoing Calitics budget coverage, in particular paradox at The Left Coaster. I think I speak for everyone in saying we appreciate the links and support.) |
