NEWS ANALYSIS : Wilson Strategy Uses Hardship to Apply Pressure

Through each stage of California’s record-breaking budget crisis, Gov. Pete Wilson has done almost everything possible to keep the heat on the Legislature to pass his spending plan, even at the risk of causing suffering that he could have prevented.

Many Democrats and some Republicans suspect that Wilson does not even want a budget.

But Wilson insists that he does--on his terms. And that is why, his aides say, the governor has rejected almost every proposal to relieve the crisis temporarily or soften its impact on the people who depend on the state and do business with it.

“There is no impetus for action if you eliminate the consequences of inaction,” said Dan Schnur, the governor’s communications director.

Over the weekend, Wilson lobbied Republicans in the Assembly to reject legislation intended to allow the state to make good on a month’s worth of claims that otherwise could not be paid until a budget is enacted.

The measure got every Democrat’s vote and the support of six GOP lawmakers Friday night but fell one vote short of the 54 required for passage. At least one Republican said he withdrew his vote in favor of the bill after being pressured by the governor.

At earlier points in the crisis, the Wilson Administration took action to ensure that the state would have to issue IOUs if the budget was late, complained that the banks’ acceptance of those warrants was prolonging the crisis, and sought to block payments to Medi-Cal providers and workers who care for homebound elderly and disabled people.

Now, Wilson is issuing daily tally sheets of the misery caused by the absence of a budget, detailing such things as the closure of centers for the developmentally disabled, the reduction in hours at several health clinics and a delay in delivering emergency grants to more than 200 families who were victims of the Big Bear earthquake.

Wilson and Democratic lawmakers have agreed since before July 1 that the budget would be balanced without a tax increase and that there would be no deficit spending. Since then, they have been fighting primarily over how much the state should take from local governments and how much it should give to the schools.

Democrats have pushed for greater school funding than Wilson, at the expense of cities, counties and special districts, which Wilson has sought to protect. Democrats also have advocated more onetime reductions and shifts, which Wilson has opposed because they would make it harder for him to balance his next budget a year from now.

But as crucial as the final budget will be to the state’s future, the stalemate, which has reached 55 days, would barely have touched anyone outside the Capitol had it not been for Wilson’s deliberate strategy to keep the pressure on. This is how he has done it:

* In May, Wilson rejected a proposal by Controller Gray Davis that would have averted the cash crisis--and the use of IOUs--by borrowing $4 billion from private banks to tide the state over until there was a budget. Wilson instead approved a loan sufficient only to allow the state to pay its bills through the end of the last fiscal year on June 30.

Additional borrowing, the governor said, would only prevent the need for IOUs and therefore “remove the pressure for prompt action by the Legislature to pass both the budget and all necessary bills to implement it.”

Moody’s Investors Service later downgraded the state’s credit rating and blamed the move on what they termed Wilson’s “political decision” to force the use of IOUs, which have been used to pay bills left over from the last fiscal year and claims required to be paid by court order or provisions in the Constitution. Other bills for work performed since July 1 are not being paid at all.

* Once the IOUs started flowing, Wilson and his aides let it be known that they thought the widespread acceptance of the warrants by California banks was easing the pressure on the Legislature.

“If the banks stop honoring the warrants, I think there will be a settlement,” William Hauck, a top aide to the governor, told the Washington Post in a story printed July 15. Around the same time, Wilson talked to the state’s top banking executives, though his aides say he never directly asked the banks to stop accepting the IOUs.

A week later, the state’s largest bank, Bank of America, and several smaller banks announced that they would take no warrants issued after July 31.

“In essence, the banks are funding the crisis--serving as a shock absorber for the budget process,” Richard M. Rosenberg, chairman and chief executive officer of Bank of America, said at the time.

* In late July, the Administration faced another confrontation with the controller, this time over a legal ruling that had forced the state, even in the absence of a budget, to pay doctors and hospitals in the Medi-Cal program and low-wage workers who assist the homebound disabled and elderly.

When a federal court lifted the temporary order, which had been in place for two years, the controller argued that it should be left in force for two additional weeks in order to allow the medical providers time to prepare for the possibility of not being paid. The attorney general’s office, acting for the governor, opposed the 14-day delay, but the judge granted it.

* As that period ran out, Davis acknowledged that he lacked the authority to pay the doctors and hospitals, but he tried to pay the in-home workers, who attend to frail people who otherwise might be forced into nursing homes. Davis argued that the in-home workers should be paid because a court case had determined that they are state employees, and all other state employees were being paid.

But the Administration refused to go along, arguing that the in-home workers are not state employees and therefore could not be compensated until a budget was in place.

* Last week, Democratic Assemblyman Rusty Areias of Los Banos started building a bipartisan coalition for an emergency measure to pay individuals and companies that have performed work for the state, even without a budget.

At the request of GOP lawmakers, Areias narrowed the bill to cover only claims through July. The changes attracted the votes of six Republicans Friday night, but the bill fell one short when Republican Paul Horcher of Hacienda Heights, who originally voted for it, changed his mind and voted against it.

Horcher, in an interview, said Wilson lobbied him through Republican Leader Bill Jones of Fresno to oppose the bill. But Horcher said he probably would vote for the bill if it came up again.

“It was a battle between the heart and the mind,” he said, “and the next time I’m going to go with my heart.”

Areias said it was hypocritical of Wilson to criticize the Legislature for the hardship caused by the impasse even as he has worked all summer to ensure that, with no budget, the hardship would be as great as possible. The only move Wilson has taken to ease the pain was when he asked the Legislature to pass an emergency measure to pay state employees, including legislative staff, without a budget. In that case, Wilson said the state risked having to pay legal damages if it did not compensate its workers.

“The governor and the Republicans didn’t have the courage to go back to their offices without some means of paying the workers in their own employ,” Areias said, “yet they’re willing to hold hostage the paychecks of the people who work with the developmentally disabled, folks in nursing homes, and on and on.”

Jones, the Republican leader, said the Areias measure was well intended but the wrong solution because it would have relieved the pressure on lawmakers just as they were starting to feel the heat from their constituents. He compared the bill to the “continuing resolutions” that Congress uses to keep the federal government going when it cannot agree on a budget.

“The reasons are good, but once you do it, the next week the reasons are good again,” Jones said. “There’s no bottom line. There’s no point in time when things stop and decisions have to be made.”