An Ever-Costlier Squabble

If not for a gentleman’s agreement between state officials and a group of New York banks, California would be in default on a $4.3-billion loan it took out earlier this year to cope with the electrical power crisis. Nevertheless, the state’s failure to pay off the loan is beginning to cost a pretty penny, including a penalty that is mounting at the rate of $235,000 a day--$5million just since Oct. 10.

This outlandish hemorrhage of state money, outlined in Wednesday’s Times by staff writer Miguel Bustillo, could be stopped today if state officials had the will to do it. They may have honest differences over policy points, but that is no excuse for wasting $235,000 a day. It must stop.

Gov. Gray Davis, the state Public Utilities Commission and the Legislature have a decent solution in front of them in the form of a measure enacted by the Legislature. If Davis still insists on vetoing the measure, which would allow the state to issue energy bonds but also would allow for renegotiating some of the long-term power deals the Davis team reached earlier this year, then he is obligated to work out an alternate solution immediately.

The state cannot repay the loan until it sells $12.5billion in state power revenue bonds. The bond proceeds also are needed to fully reimburse the state’s general fund more than $6million used early this year to buy power at wildly inflated prices. The state Finance Department now says the bond sale--originally planned for this fall--probably won’t occur until spring. If it’s not done by April, the state will be forced to start making principal payments on the bridge loan in $390-million increments--money the state might not have.

All this is happening as the California economy continues to sour and tax payments and other revenue decline at an alarming rate. Davis has ordered budget cuts, but the Finance Department doesn’t know if the state will have enough cash on hand to pay its bills in coming months. State officials can only measure the severity of the downturn, translate that into the size of the likely deficit and develop a plan to close the gap. That could take a combination of spending cuts and, as a last resort, tax increases.

The governor is holding an economic summit with business leaders, academics and others in Burbank on Friday. He is expected to brief legislative leaders on the budget gap next week and possibly call the lawmakers into special session. So far, Davis appears to be acting prudently on this issue.

But wasting $235,000 a day is not prudent. Davis and the state Public Utilities Commission have to agree on terms of the sale of the state bonds and their repayment from the electric power rates paid by consumers. Further delay in the bond sale not only costs the state interest and penalties, it threatens to plunge California into a cash crisis.