Businesses Getting Caught in State Budget Cross-Fire

Nearly two weeks into the new fiscal year without a state budget, businesses that contract with the state are starting to feel the pinch.

State Controller Kathleen Connell on Thursday was prohibited from sending checks to thousands of businesses with state contracts, including pharmacies, nursing homes and prison service providers.

The state does not even have the luxury of sending IOUs, as it did in the budget crisis of ‘92, when the state passed a budget two months late. (Legal challenges put an end to the IOUs.)

“The bills for businesses are being allowed to accumulate, and there’s nothing that the state can do to bail them out,” Connell said.

Connell, a potential Democratic gubernatorial candidate in ‘98, expressed anger that businesses are getting caught in the cross-fire of Sacramento politics.

“As the budget politics continue, small businesses are getting hurt,” she said. “These are businesses that don’t have the cash flow to survive a missed payment by the state.”

Many businesses bill for their services on a monthly basis and have not yet been affected by the stalled budget negotiations.

But some, such as Serra Medical Clinic in Sun Valley, receive weekly payments for services, and the state began defaulting on those payments this week.

“We depend on that money to stay alive,” said Serra physician S.K. Durairaj. “We are in a poor neighborhood, and we rely on Medi-Cal for 55% of our income.”

Durairaj said the medical center bills the state for nearly 2,500 Medi-Cal claims every month. Those bills will remain unpaid as long as the state does not have a budget.

Many small businesses without hefty cash reserves have been forced to take out emergency loans to pay their bills. Consequently, they end up paying interest on the loans, which is not reimbursed by the state.

By next month, some state employees will go without pay, along with all private contractors.

The Legislature has a June 15 deadline to pass a budget, but that date is routinely missed. Lawmakers take more seriously the July 1 start of the new fiscal year, but they have missed that date nine of the last 10 years.

Durairaj questioned the reasons for this year’s budget delays. He cited the state’s $2.2-billion budget surplus this year. Most of the protracted budget battles took place during the height of the state’s recession in the early ‘90s.

This year, the culprit is welfare reform. Gov. Pete Wilson and legislative leaders have yet to agree on a plan to carry out federal welfare reform in California, which is expected to consume 28% of the state’s $68-billion budget.

HOT BILLS

Disabled Workers

Bottom line: The promising success of a class of drugs called protease inhibitors is extending the lives of many AIDS and HIV patients, allowing them to return to work when once they were too sick to leave home. But many who want to go back to work cannot afford to do so because their private health insurance will not cover the steep cost of medications. The bill would allow those patients who return to work to keep their Medi-Cal eligibility for the first six months of employment--a period often not covered by employer health plans for new employees.

Chances: The bill sailed through the Assembly by a 77-1 vote last month after it was amended to include all disabled Medi-Cal recipients. The bill cleared the Senate Health and Human Services Committee Wednesday on a 6-1 bipartisan vote.

Next step: Senate Appropriations Committee; no date scheduled.

Details: AB 1099 author Carole Migden can be reached at (916) 445-8077.

Please send Capitol Matters comments via e-mail to cyndia.zwahlen@latimes.com