State Budget Watch

On the state’s 37th day without a budget, these were the key developments in Sacramento:

THE PROBLEM

Legislators and Gov. Pete Wilson need to bridge a $10.7-billion gap between anticipated revenues and the amount it would take to continue all programs at their current levels, rebuild a reserve for emergencies and erase last year’s deficit. The state is short of cash and, without a budget for the fiscal year that began July 1, cannot borrow money to pay its bills. Instead, claims are being paid with IOUs known as registered warrants.

IOUs

Issued Thursday: 104,084 with a value of $156.6 million.

Since July 1: 996,985 with a total value of $2.1 billion.

GOV. PETE WILSON

Met briefly in his office with legislative leaders but made no public report of progress. Signed two budget-related bills.

THE LEGISLATURE

The Senate and Assembly met but did not take up any budget legislation. Private negotiations are ongoing.

KEY DEVELOPMENTS

Several Senate Republicans said they are prepared to vote for an alternative budget proposal offered by Republican Sen. Frank Hill of Whittier and supported by Democrats but opposed by Wilson and GOP leaders. The Republican senators said they will make a final decision after seeing the legislation that needs to accompany the budget to make it work. The proposal is scheduled to be considered by the two-house budget conference committee today and may be on the Senate floor Sunday night. If all 24 Democrats and 2 independents vote for the plan, it would need just one Republican vote to meet the two-thirds majority needed for passage.

Today will be the last day that Wells Fargo and many other California banks accept state-issued IOUs from their customers. Bank of America purchased its last warrants Tuesday. Bankers hope that the action will cause customers to put pressure on Wilson and the Legislature to enact a budget. Meanwhile, other options are springing up for warrant holders. Los Angeles County has been buying IOUs from school districts in need of cash. The city of Sacramento also said it plans to cash in IOUs for residents and businesses, minus a small processing fee.

Controller Gray Davis announced that major state tax revenues showed a slight increase in July over the same month a year ago, but attributed the increase to a 25% jump in revenue from the sales tax, which applied to more products and was charged at a higher rate this July than it was in 1991. Personal income tax revenue was down 7.3% and revenue from bank and corporate taxes dropped 15.9%.

Wilson signed two emergency measures meant to ease the budget crisis. One grants broader authority to the Franchise Tax Board to settle disputes with taxpayers for less than the full amount in question without going to court. The bill is expected to generate settlements totaling about $300 million this fiscal year. The other measure gives the California State University system the right to offer a “golden handshake” early retirement program that is expected to save $50 million this year, which will be used to prevent layoffs of tenured faculty and reinstitute class sections cut a year ago.