Banks and the Budget: Party’s Almost Over : Maybe rejection of IOUs will spur Wilson and Legislature

Day 24 of California’s fiscal crisis brought sobering news: Beginning next month, three of California’s biggest banks will stop cashing IOUs being used in lieu of checks to pay state government workers and suppliers. Bank of America Chairman Richard M. Rosenberg, in announcing that California’s biggest bank would pull out of the IOU business, said that banks no longer wanted to serve “as a shock absorber” for the state budget crisis.

The enough-is- enough attitude of the banks should put Sacramento on notice that the budget impasse must be resolved. Time and money, not to mention patience, are running out. The uncertainty and disarray caused by the breakdown in fiscal policy are unsettling to thousands of workers and businesses. That’s not even to mention that California’s image is suffering nationwide as Republican Gov. Pete Wilson and the Democratic-controlled Legislature remain deadlocked on how to bridge the $10.7-billion gap that is in the way of adopting a budget.

This year’s budget negotiations have been characterized by secretive, back-door horse-trading that has yet to yield anything visible. The haggling over how deeply to cut education, health and local government continues despite a notable bipartisan attempt by Sen. Frank Hill (R- Whittier) and Assemblyman Phillip Isenberg (D-Sacramento).

SHIFTING AGREEMENTS: True, some things are being worked out behind the scenes. But still other things seem to unravel over time. Take, for example, the negotiations on cuts to local government. A few weeks ago, the plan was to withdraw state funding of a bailout program for cities that was adopted in the wake of passage of Proposition 13 in 1978. Assembly Speaker Willie Brown (D-San Francisco) compared the cities’ dependence on bailout to heroin addiction, and even Gov. Wilson agreed it had to go. But now Wilson has backed down on that idea, and Los Angeles legislators have told Brown they won’t vote for a budget that withdraws bailout funding from their riot-torn city. It’s unlikely the budget would pass without their votes.

Progress is being made on a local government agreement that for one thing would allow counties to raise sales taxes to make up for some of the funds the state is taking from them. Negotiations are stalled over whether counties must put a sales tax hike to a vote of the people or can simply impose a tax by a majority vote of their boards of supervisors.

STONES UNTURNED: A long-shot proposal worth a look is a plan by Assembly Health Committee Chairman Bruce Bronzan (D-Fresno) that--though it sounds like a gimmick--would free up $900 million in this year’s budget for other programs. Last year, the state shifted accounting systems. With the change the state now must show certain Medi-Cal charges as payable in this budget year even though the demand for payment will not be made until next year. The current accounting thus gives the budget a false expenditure item; that money could be used for other purposes. This system is contrary to those of nearly all other states and the federal government.

The muddled handling of the budget process has left Californians disgusted with Wilson and the Legislature. Perhaps the added pressure from the banks finally will force them to do what they were elected to do: adopt a spending plan for the state.