Time Is Money in Budget Crisis

After several days of 20-minute sessions that involved little more than the Pledge of Allegiance, the Legislature knuckled down to work last week on California’s budget problems.

Speed is of the essence as lawmakers scour health, education, resource and transportation programs for ways to pare millions of dollars. That’s because every day the Legislature fails to act, millions of dollars flow from the state’s dwindling money supply.

On Thursday, for example, even as lawmakers in the Assembly debated whether to save $90 million by halting state Department of Transportation payments to cities and counties for road repairs, the controller’s office followed its usual payment schedule and mailed checks for $44.8 million of that money to local governments.

“We’re sending out every week tens of millions of dollars, if not hundreds of millions of dollars,” said Controller Steve Westly. “And while the money is much needed, the real result is to further tie the hands of the Legislature. Every week we delay we put ourselves in a tougher position.”

Last month, as it became clearer how badly a stock market collapse had knocked California’s budget off course, the governor spelled out $10.2 billion in cuts and adjustments -- some of which would cut spending from the current budget, others of which would trim money from next year’s anticipated spending -- and asked the Legislature to enact them by the end of January.

Legislative leaders said last week that they intend to cut at least $4 billion before February, and to raise car and truck registration fees to generate another $4 billion. They are faced with a shortfall estimated at between $26 billion and $35 billion over the next 17 months.

With such huge cuts required, legislators say they are conscious of the ticking clock.

“We are hard at work, and we will take action on midyear proposals before the month is out,” said Assembly Speaker Herb Wesson (D-Culver City). Senate leader John Burton (D-San Francisco) added: “The goal is to do whatever we’re going to do as quick as we can do it.”

There are fewer than six months left in this budget year, so much of the money the Legislature allocated to various programs is already spent. But in many cases, the timing of a cut can make a big difference in the value of a cut.

Take, for example, a federal program called Supplemental Security Income. The state contributes to the program, which gives about 1.1 million blind, disabled and poor elderly Californians monthly checks that average $757. The state budget passed last summer included money to boost those checks in June by an average of $21 a month.

Davis proposes suspending that June cost-of-living increase, for $22.3 million in savings. He’d also suspend another increase scheduled for January 2004, for a total savings next year of $328 million.

“If you don’t suspend the one-month [cost-of-living increase] in June,” said Burton, “then next year’s base goes up that amount. So that’s why the suspension of this saves more than one month’s $21; it saves a lot of dough.”

Burton insisted that if the Legislature suspends the monthly boost in Supplemental Security Income checks, then it should also make sure that the increases kick in automatically whenever the state’s revenues improve.

“We’re dealing with people’s lives, and we don’t want to get into a slash-and-burn mentality,” he said. “A fair amount of stuff’s got to be done by the end of January and the first week of February. Some stuff can be done later and still have the same fiscal impact.”

Lawmakers returned to Sacramento Jan. 6, but few committees -- the workhorses of the Legislature -- even convened until after Davis unveiled his full $96.4-billion budget proposal on Jan. 10.

Lawmakers may accept or reject the governor’s ideas in the “January cut package” they expect to craft over the next two weeks. If they delay acting beyond January, roughly $300 million a month will be paid out that might have been saved, Westly said.

Capitol old-timers say they don’t recall legislators ever trimming the budget so early in the year. Minority Republicans usually get the blame for holding up a budget deal in California, one of a few states that requires a two-thirds vote to pass its spending plan.

But in the January rush to shrink expenses, it may be Democrats who balk. Davis’ proposed cuts would slice deep into social programs dear to Democrats. They would, for example, eliminate payments for syringes for diabetics; cut payments to nursing homes by 10%; and eliminate a program that provides unsold fruits and vegetables to poor elderly people.

“All of us would like to not have our names associated with this,” Assemblywoman Jackie Goldberg (D-Los Angeles) said Thursday during a hearing in which she weighed eliminating one day of the school year -- a savings of $150 million -- as well as cutting money for 10th-grade counseling and new books.

Of the $10.2 billion in cuts sought by Davis, $3.4 billion would come this year, possibly disrupting programs or leaving departments with no money to pay for committed contracts.

Cities and counties, for example, have signed road repair contracts based on the $90 million they expect to get this year from the Department of Transportation, said Natasha Fooman, legislative analyst for the League of California Cities.

“We’re already under a legal obligation to spend and award the contracts,” she said, and cities could find themselves liable for damages if state budget cuts disrupt the contracts.

Speed matters on tax increases too. On Tuesday, Wesson vowed that by the end of January, the Assembly will boost the annual fee that Californians pay to register their cars and trucks. The more than $4 billion in new revenue expected from the increased fees wouldn’t begin to show up in the state’s coffers until July at the soonest, but every month that the Legislature delays raising the fees costs the state $300 million, budget experts say.

“Based on the time it will take for this to kick into gear, it’s best to do this before end of January,” said Wesson.

There’s another reason lawmakers and the governor are rushing to move quickly on the budget: perception. They want to prove to the money lenders on Wall Street that they’re serious about tackling California’s troubles.

In early February, state Finance Director Steve Peace and Treasurer Phil Angelides will visit New York to speak about California’s budget with the rating agencies that judge the state’s ability to pay its bills. Their opinions hold great sway over how much California pays to borrow money, as the state will probably have to do to even out its cash flow while the budget is crafted.

“The ball is in the Legislature’s court,” Peace said. “The Legislature has to show they understand the significance of this, or the markets are going to get testier and testier.”