State Controller May Freeze Payroll Until Budget Passes : Legislature: Official says some Medi-Cal payments could also stop if agreement isn’t reached by Saturday.

Attempting to force a state budget agreement, California Controller Kathleen Connell said Monday she is considering withholding lawmakers’ salaries, and cannot pay 35,000 state employees if the Legislature and Gov. Pete Wilson fail to approve a budget by Saturday’s constitutional deadline.

Without a budget, Connell said, she also will have no choice but to delay payments of some Medi-Cal bills, such as prescriptions, for elderly people--a step that would add pressure on lawmakers to approve a spending plan.

Under the state Constitution, California must have a new budget by the July 1 start of the 1995-1996 fiscal year. But Wilson and the Legislature remain far apart and seem to be in no rush to approve a budget.

In recent years, it has become common for the deadline to pass without a budget. In 1992, the state went more than 60 days without a budget, leading state government to pay its employees and vendors with IOUs.

Connell, who is in her first year in office and who issues the checks for the state, said California has the cash to pay its bills. However, without agreement on a budget measure authorizing state spending in the new fiscal year, Connell said she will have no choice but to delay paying vendors, some medical bills for the elderly, the blind and the disabled, and as many as 35,000 state employees, including management officials.

“I don’t think any taxpayer is going to be sympathetic to the idea that we have the cash but are not paying our bills,” said Connell, a Democrat.

Connell last week suggested that she would withhold lawmakers’ pay starting July 1 if they had not approved a budget by the deadline. But she softened her position after concluding that there may be a constitutional requirement that she issue their checks. However, Connell said she is still studying the question.

“I’m raising a moral issue here,” Connell said after a speech in Sacramento. “If there are [state] employees who are not going to be paid because we have partisan politics dominating the Legislature, then there has to be a question of who else should accept responsibility.”

In the Legislature, the Senate-Assembly budget conference committee met Monday afternoon. But Wilson and top legislative leaders have not scheduled budget talks to resolve differences.

Wilson has proposed a $56-billion budget that includes deep welfare cuts and requires 10% increases in state college and university tuition. Wilson also is pushing for a 15% income tax cut over three years--an idea opposed by many Democrats.

“We fully expect to have a budget in the month of July,” Wilson spokesman Paul Kranhold said. “We are hopeful that the Legislature will forward us a budget by Saturday, or soon afterward.”

The amount separating Democrats and Republicans is relatively small--$1.8 billion--compared to other years of the Wilson Administration, when the gap between Wilson’s proposals and what the Legislature proposed ranged from $5 billion to $14 billion. But rancor is so dividing the Assembly this year that partisans in the budget fight have yet to take the first steps toward a solution.

“It can happen by Saturday,” said Assembly Republican Leader Jim Brulte. “There is no reason that it couldn’t or shouldn’t happen by Saturday. But I don’t know if it will.”

Past court orders require that, even without a budget, the state pay to keep schools open and issue checks to welfare recipients. The state also will continue to meet its bond debt and pension payments, Connell said.

But starting Saturday, Connell said, the state will not pay vendors who perform various services for the state, or deliver goods to state prisons and state hospitals. Without a budget, she said, state agencies that lease space will be unable to pay rent and cannot pay utility bills. Payments for services such as nursing home care or food deliveries to prisons would be delayed until a budget is approved.

“The effect of having no budget begins immediately. It begins on July 1, and the damage will grow with each day,” Connell said.

If the state goes without a budget through July, the missed payments would total at least $360 million for Medi-Cal and state assistance to counties to operate trial courts. The total for employees was not known.

Unlike 1992, the last time there was a lengthy budget deadlock, the state cannot use IOUs to pay its workers who fall under the Fair Labor Standards Act.

A federal judge, acting on a lawsuit brought by state employees, ruled last year that the state acted illegally in 1992 by issuing the IOUs, and that roughly 120,000 workers covered by the Fair Labor Standards Act must be paid even if there is no budget.

But between 33,000 and 35,000 state workers are not covered by the act, raising the possibility that they will not be paid on time for work done after July 1.

The employees whose pay is in jeopardy include Wilson’s political appointees, and heads of departments and middle-level managers. Professionals such as deputy attorneys general and state physicians and dentists also may have their paychecks delayed. An aide to Connell said the controller’s office is reviewing the law to determine whether judges and other judicial officials can be paid.

The first state employees to miss a paycheck would be in the Department of Transportation, where 50 management employees would miss July 15 paychecks for work done after July 1.

Gov. Pete Wilson has criticized the commission’s findings, and Sens. Barbara Boxer (D-Calif.) and Feinstein have urged the President to throw out the panel’s work entirely. Rep. Vic Fazio (D-West Sacramento), whose district includes the threatened Air Force base, wants Clinton to send the report back and ask the commission to redraft it without the McClellan closure recommendation.