Effort to Repay State for Power Is Delayed

California will not be able to reimburse state coffers the billions spent buying electricity during the energy crisis until August at the earliest, which will leave the state perilously close to running out of money this fall.

Democrats and Republicans failed to come to terms Monday on emergency legislation that would authorize up to $13.4 billion in bonds to repay the state budget, leading Democrats to push forward with a last-gasp strategy.

The Legislature’s ruling party outflanked the minority GOP by introducing an identical, nonemergency measure that required only majority approval, not two-thirds passage. It was approved by the Assembly Monday evening on a 49-29 vote, and is expected to receive final Senate approval Thursday.

Though it guarantees California taxpayers will eventually be repaid in full for electricity purchases made to supply private utilities, the Democrats’ action carries a series of negative consequences for the state as it seeks to escape the energy crisis.

The nonemergency bill will take a minimum of 90 days to become law after the special session ends, effectively leaving the general fund with a massive hole as lawmakers prepare the state budget over the next two months.

“We can’t sell the bonds as quickly, and will probably need a contingency budget,” said Assemblyman Speaker Pro Tem Fred Keeley (D-Boulder Creek).

Keeley said lawmakers will probably have to prepare a spending plan with different levels of funding--one from July, the time the next fiscal year begins, to whenever the bonds are eventually sold. Lawmakers may also have to consider a worst-case scenario: the possibility that the bonds will not sell.

“If [investors] don’t buy the bonds,” Keeley said, “the situation we’re in is very, very dire because the general fund would be repaid very, very slowly.”

State Treasurer Phil Angelides had hoped to borrow $4.13 billion to partially repay the budget until bonds could be issued, but lawmakers said the new legislation will make that impossible. Angelides’ tentative deal to borrow the money from several Wall Street firms expires today. The deal required authorization on the bonds, because bond proceeds were to be used to repay the loan.

“The Assembly Republicans’ refusal to support emergency legislation puts the state’s fiscal integrity at great and continuing risk, and does serious harm to essential services from education to public safety to health care,” Angelides said in a statement.

The delay also means that Gov. Gray Davis will fail to keep his promise to repay the budget and take the state out of the energy buying business by the end of June. That is crucial, because many of the contracts to purchase electricity that the Davis administration signed contain language that may make them void if financing is not secured by July 1. If the contracts evaporate, the state will be forced to buy even more power on the expensive spot market to avoid blackouts.

Davis plans to replenish state coffers and stop using taxpayer money on power purchases by floating a record bond issue, which would be repaid by utility ratepayers out of their monthly bills. But the bonds cannot be issued until the bill in question takes effect.

In a statement, Davis also accused Republicans of “obstructing the solution” to the state’s electricity problems, saying “their decision to play partisan politics with the energy crisis seriously complicates the budget process and could ultimately threaten our economy.”

So far this year, California has spent more than $5 billion from the budget buying power for the private utilities that were too financially strapped to continue doing so.

Most critically, the measure will leave a dangerously narrow window of time for the bond to be issued so the budget could be reimbursed before state coffers begin to run dry in early fall. The $12.5-billion bond is expected to be the largest in American history, and experts say it will require a significant sales effort. The Democrats’ bill authorizes a slightly larger amount in case the bond issue needs to grow.

Assembly Speaker Bob Hertzberg (D--Sherman Oaks) said he will continue working with Republicans in hopes of passing legislation to authorize the bonds sooner.

“I’m still holding out an olive branch to Republicans,” Hertzberg said.

Lastly, the bill’s final passage will kill, temporarily at least, hundreds of energy-related bills now winding their way through the Legislature. That is because, for the bill to become law as quickly as possible, Democrats would have to adjourn the current special legislative session on the energy crisis.

Democrats are vowing to quickly approve a host of important bills this week before the session is closed down. And Davis is expected to immediately call another special session, said spokesman Steve Maviglio, so most of the remaining bills could be reintroduced.

Nonetheless, the process would slow down passage of numerous measures--especially for Republicans, who may have a harder time getting their bills through both houses a second time. Republicans hold only 30 of the Assembly’s 80 seats, and 14 of the Senate’s 40 seats, making them a distinct minority.

Without question, the Democrats’ move represents a ratcheting up of partisan politics on the energy crisis.

Republicans held up the initial legislation in hopes of forcing Davis and his Democratic colleagues to alter their financial plan to get the state out of the crisis--even if it meant scaling back the next state budget.

Davis has proposed borrowing the $12.5 billion to repay the budget and cover future power purchases over the next two years, which would allow his next state budget to move forward unimpeded by the crisis.

GOP lawmakers, who are convinced that the size of the bond will need to be increased to finance Davis’ plan, countered last week with a proposal to essentially gobble up most of the state’s projected surplus by writing off $5 billion in electricity purchases and borrowing less in bonds for future power buys.

But Democrats balked at the Republican proposal, saying California had far too many needs in education, law enforcement, transportation and health care to permanently spend $5 billion on electricity. Furthermore, they said, using taxpayer money instead of electric rates to cover power purchases would favor big business.

“Today, we take a bitter pill to fix a problem we all know needs to be fixed,” Assemblyman Dennis Cardoza (D-Merced) said.

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Times staff writers Carl Ingram and Dan Morain contributed to this story.