Plan Would Ease Squeeze on Retailers

Responding to complaints of economic hardship, the State Board of Equalization concocted a plan Thursday that will provide financial relief to thousands of retailers who have not been paid for goods and services they have provided the state during its budget crisis.

In a vote that crossed party lines, the four-member board unanimously approved a new policy that allows businesses, in effect, to offset what the state owes them by withholding payment of state sales taxes that they collect.

“It’s not necessarily the best business practice . . . but in this particular case it’s in the best interest of the citizens,” said board member Ernest Dronenburg, a Republican.

Board Chairman Brad Sherman, a Democrat who came up with the idea of using sales tax collections to help pay the state’s bills, said the largest group of retailers affected by the policy are California’s 6,000 pharmacies that have been providing drugs to poor people under Medi-Cal, the state and federal program that provides medical care for the needy. The pharmacies provide $72 million in drugs for the Medi-Cal program each month.

By law, pharmacies and thousands of other businesses throughout California cannot collect payment for goods and services provided to state programs until lawmakers resolve what is now a 58-day deadlock and enact a budget.

But Sherman said he found a way around the law that will help ease the financial pain of the budget crisis for those providers who also happen to be retailers.

“It’s kind of a backstop to provide the business world and especially (Medi-Cal) patients with some peace of mind,” Sherman said.

However, the policy cannot go into effect unless it is approved by state Finance Director Tom Hayes, an appointee of Gov. Pete Wilson. Although the Republican governor has opposed other attempts to permit payments and relieve pressure on the Legislature to pass a budget, Republicans on the board said they expect Hayes to give it a “green light.”

Board member Matt Fong said he talked with Hayes before voting on the policy and received no indication that the governor was opposed to the idea. A spokesman for Hayes said the finance director has to study the plan before he reaches a decision.

Although more than 100,000 businesses have gone without payment during the budget crisis, some have suffered more than others. Many vendors, particularly those who provide food to state institutions, have not been paid since July 1, the beginning of the state’s fiscal year. Medi-Cal providers, on the other hand, were eligible to receive payments until Aug. 14, when a federal judge lifted a temporary order that had required the state to pay those providers even in the absence of a budget.

Under Sherman’s plan, wholesalers and other providers who do not collect sales taxes will not be eligible for relief.

Officials representing drugstores appeared before the board earlier in the week to beg for financial assistance.

David Keast, vice president for legal affairs for the California Pharmacists Assn., said drugstores were being drained financially by the crisis because they were still having to pay for inventories while not getting reimbursement for medicines provided to the needy.

“Obviously, they (the stores) are making every effort to continue to provide services but their personal and financial reserves are limited,” he said.

Christian K. Bement, executive vice president of Thrifty Corp., a chain of 570 stores, said his company provides about $5 million a month in Medi-Cal drugs. “Our stores are getting strung out as far as their ability to continue to carry this load,” he said.

He said Sherman’s plan would go a long way to ease the chain’s cash-flow problems.

John Dunn-Mortimer, director of the Sacramento office of the Los Angeles AIDS Project, said he feared that if the pharmacies were not offered some relief soon they may have to stop providing essential drugs for AIDS and other critically ill patients. He said about 6,000 Californians with AIDS rely on Medi-Cal for their survival.