Budget Stalemate Creates Pressure for Vendor Payment Bill

As the state’s budget stalemate stretches into its sixth week, the Wilson Administration is exploring the politically touchy issue of allowing payment to small businesses that have received no remuneration since July 1 for goods and services supplied the state.

With more and more businesses complaining of economic hardship, the Republican governor faces a dilemma:

If he agrees to sign a bill authorizing payment, he removes some of the pressure on the Democrats in the Legislature to reach a budget agreement on his terms.

On the other hand, if he stands firm, he risks alienating thousands of small business people, many of whom strongly supported him in the 1990 gubernatorial election.

“He’s got two serious questions,” acknowledged Kassy Perry, Wilson’s deputy communications director. “He’s very concerned for the small business people . . . and he has serious concerns about letting up on the pressure on the Legislature.”

Democrats, meanwhile, are adding to his political discomfort by marshaling support for a measure that would authorize payment of up to $19 billion in past-due bills. But they concede that the bill has no chance of becoming law without support from Wilson and some Republican legislators.

“Obviously, the preferred solution is a budget,” said Assemblyman Rusty Areias (D-Los Banos), who is sponsoring the measure. “But in the absence of that, why should we continue to victimize these business people?”

Since July 1, when the governor and the Legislature failed to reach agreement on a budget for the state’s new fiscal year, nearly 95,000 businesses have gone without payment for goods and services supplied to state agencies and institutions.

Controller Gray Davis, who pays the state’s bills, said California law prohibits him from writing checks to the vendors unless there is a budget or special legislation authorizing payment.

As the weeks have gone by, the outcry from businesses serving the state has intensified. Many have said they were forced to lay off workers and others have announced they could no longer deliver their goods to the state. Most have dipped into cash and inventory reserves or borrowed heavily from banks in order to stay afloat.

“It’s not fair. It’s not fair for them to make any vendor suffer, big or small,” said Harold Epstein, president of Bernard Fine Foods, which stopped delivering its products to state institutions in mid-July. “Where do we get the money to live on? If we go broke what is that going to prove?”

Assemblyman Tom McClintock (R-Thousand Oaks) said he is ready to support legislation that would pay vendors who provide vital goods and services to the state. But McClintock said the Democrats have proposed a broad plan that also would permit payment to an array of social service programs whose high cost he blames for helping to create the budget crisis in the first place.

“I think that a narrowly drawn bill would be supported virtually without dissent,” he said.

Areias said he would be willing to compromise on a more restrictive bill but he said his measure already leaves the final determination of who gets paid in the hands of the state finance director, a Wilson appointee.

Perry said the governor is “looking at the legislation” and has not decided whether to support it. She said the governor is worried that if he signs a bill approving payments, the Legislature would continue “these kinds of bills and before we know it, it’s 1999 and we still don’t have a budget.”

Areias argued that the approval of a payment bill would not take any pressure off the Legislature to resolve the budget crisis because “this is an election year and that’s pressure enough.”

Even if a payment bill is approved, many vendors predicted it will still be weeks before they see any money. In a similar crisis in 1990, said Epstein of Bernard Fine Foods, he had to wait 120 days after the budget was resolved for his first check.

Davis, however, said he would transfer much of his staff to his payment division in order to get the checks out as soon as possible.

But he acknowledged that the budget crisis has built up such a backlog that when payments are finally approved “it will make rush hour traffic in downtown Los Angeles look like smooth sailing.”

State Budget Watch

On the state’s 42nd 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. Without a budget for the fiscal year that began July 1, the state is short of cash and cannot borrow money to pay its bills. Instead, claims are being paid with IOUs known as registered warrants.

IOUs

Issued Tuesday: 8,958, with a value of $19.7 million.

Since July 1: 1.04 million, with a value of $2.2 billion.

GOV. PETE WILSON: Met with members of the Assembly Republican caucuses. Met with legislative leaders. No substantial progress was reported from either gathering.

THE LEGISLATURE: The Assembly met but put off until tonight voting on budget-related amendments. The Senate did not meet.

OTHER ACTIVITY: Making a budget solution even tougher, the Administration’s finance director, Thomas W. Hayes, noted that the state economy continues to perform poorly. “It will probably be 1993 at the earliest before there is any meaningful recovery,” Hayes said, adding that a second-half recovery that the department foresaw in May “now appears to be unlikely.”