California budget deadline passes without a budget

California begins a new budget year Thursday without a spending plan in place and with no agreement imminent between state legislators and Gov. Arnold Schwarzenegger on how to close a $19.1-billion deficit.

State employees and others who depend on government money were bracing Wednesday for the possible fallout. Thousands of state workers took to the Capitol steps, protesting spending cuts and the governor’s threat to slash their pay. Community colleges and vendors that do business with the state are on edge, their payments in jeopardy because of the budget delay.

And California’s top finance officials warned of further reductions in the state’s already woeful credit ratings on Wall Street.

With the budget deadline looming, the governor and top Democrats huddled late Wednesday to discuss ways to break the impasse in negotiations.

Schwarzenegger has proposed deep cuts, including the elimination of the state’s main welfare program and of day care for 142,000 low-income children to balance the books. The leaders of the Assembly and Senate, both Democrats, have yet to unite behind a budget plan, announcing Wednesday that they have reached agreement only on broad principles, such as suspending corporate tax breaks and increasing school funding.

“There has been quite enough damage, thank you, to public education and to health and human services,” Senate President Pro Tem Darrell Steinberg (D- Sacramento) told reporters. “That’s where we are going to stand.”

Both Democratic leaders’ proposals to close the shortfall, which represents roughly a fifth of the general fund, include borrowing and a new levy on oil. Republicans oppose new taxes.

An agreement that has the support of the governor and GOP lawmakers — some of whose votes are needed to pass a budget — is nowhere in sight. Legislative leaders have announced that most lawmakers will be allowed to return to their districts next week for summer recess.

Assembly Republican leader Martin Garrick (R-Solana Beach) blamed his Democratic counterparts for the stalemate.

“They haven’t engaged in any negotiations,” he said. “I have spoken to the [Assembly] speaker once on the subject of the budget, and it was pretty generic.”

Bill Whalen, a research fellow at the Hoover Institution and speechwriter for former Gov. Pete Wilson, compared the situation to “a multi-car collision.”

“All parties are to blame here,” Whalen said. “They’re all coming up with plans they know the other side will summarily reject.”

Each day that passes without a budget is a lost opportunity to cut spending or collect more taxes. “Every day from July 1 on, we lose $52.5 million,” Schwarzenegger said this week.

Without a budget in place, the state cannot legally pay $1.2 billion of its $21.2 billion in July bills, according to the controller’s office. Those sums include money for community colleges, vendors that contract with the state and grants for college students.

Scott Lay, president of the Community College League of California, said the missed payments impose “hundreds of thousands of dollars in borrowing costs” on community colleges, “money that could be dedicated to instruction and student services.”

Public pressure to pass a budget is growing.

State Treasurer Bill Lockyer, a Democrat, said in a statement Wednesday: “A protracted budget delay would benefit no one except California bashers and Wall Street speculators who profit from bad headlines and political dysfunction.”

Ratings agencies have threatened to downgrade the state’s credit, which would add millions to borrowing costs.

Busloads of purple-clad unionized state workers rallied at the Capitol on Wednesday against Schwarzenegger’s effort to reduce their pay to the federal minimum wage until a budget accord is reached.

“I can’t live on $7.25,” said a sign held by Karen Stewart, a 49-year old contract analyst at Corcoran State Prison. Stewart said her husband is also a state employee, making any pay cut “a double whammy.”

Controller John Chiang has rebuffed the order to slice paychecks, though a court has ruled against him. A state appellate court heard the case in June but has not yet ruled.

shane.goldmacher@latimes.com

Times staff writer Patrick McGreevy contributed to this report.