As Clock Ticks, Controller Details Cuts

SACRAMENTO -- Roughly $1.5 billion in state money will stop flowing to schools, colleges, transportation projects and medical providers Tuesday unless the Legislature and the governor break the standoff on the state budget by then, California Controller Steve Westly said Wednesday.

The cutoff of funds will widen as the summer progresses unless the stalemate ends, Westly said in outlining for the first time how the state will begin halting payments for services and programs as its cash runs out.

Thousands of vendors who do everything from supplying state prisons with food to repairing copy machines in government buildings would not get paid.

Community college officials have warned that some campuses might have to close in the event of an extended impasse between quarreling Capitol Democrats who want to limit spending cuts and Republicans who won’t approve new taxes.

“If these payments aren’t made in a timely manner, many of our colleges will be totally out of options -- we’re talking about massive shutdowns in access and services that will begin to occur as early as August and that could affect virtually all of our colleges within a matter of months,” said Thomas J. Nussbaum, chancellor of the California Community Colleges.

“It is both tragic and ironic that many of the state’s poorest and least-advantaged college students are going to be the ones most affected,” he said.

During budget crises in previous years -- last year’s budget was not signed until Sept. 5 -- the state has not had to cut off as much money, but this year is different. A California Supreme Court ruling in May gives Westly very little flexibility.

That decision came in response to Howard Jarvis Taxpayers Assn. lawsuit to force lawmakers to take the budget deadline seriously. The court said the state has no legal authority to make many payments if no spending plan is in place.

The court also ruled that state workers can be paid no more than federal minimum wage until a budget is passed. The ruling gives state finance officials some time to reprogram their payroll system to make that possible. Westly said the computers will be updated by early September and, if no budget is in place by then, all state workers’ pay will be cut.

“A no-budget situation is not just academic,” Westly said. “It will create real problems and hardships. This is going to be real hurtful for the state of California.”

Trial courts, child development programs, some mental health services and mandated payments to local governments cannot legally be paid after July 1 until a budget is in place, Westly said. Once the budget is passed, however, all payments will be made retroactively.

Westly warned that things will get much worse if no budget is in place toward the end of July, the point at which California will be close to running out of cash. The state is currently operating entirely on borrowed money and has been put on notice by major banks that there will be no more loans without a budget. Much of government could grind to a halt at that point, Westly said.

After Wednesday’s announcement, schools and other institutions reliant on the state for money to pay their bills scrambled to find ways to get by without it. Many report that although they have reserves to sustain them for the first several weeks, they could find themselves in serious trouble if there is still no budget by August.

The news comes as 30,000 state workers are receiving notices warning that they could be laid off starting in the fall if their unions refuse to renegotiate contracts in a state effort to cut expenses by $855 million.

School employees also face the prospect of not being paid.

“We may be able to deal with [no state payments] for a month, maybe even squeeze it out for two months,” said Joe Zeronian, chief financial officer of the Los Angeles Unified School District, where more than a third of the schools are on year-round schedules. “But obviously, if it goes on, we will not have funds to pay employees.”

Community college districts, including Compton’s and Santa Monica’s, may be forced to cut summer school classes or borrow money for them, because they have scarce reserves in place, said Robert Turnage, vice chancellor for fiscal policy at California Community Colleges. If a state budget isn’t approved by the end of July, the system stands to lose its $192 million in state aid for that month. The same thing could happen each month the stalemate lasts.

“This could really put some districts between a rock and a hard place, as far as being able to maintain their scheduled course offerings for the summer session,” he said. “If they don’t have much in the way of reserves, it forces them either [into] short-term borrowing or making cutbacks in classes, and that’s not an easy choice to make.”

The UC system would lose access to its $250 million in monthly state aid, and the California State University system would be deprived of its monthly payment from Sacramento as well, though Westly’s office was unable to provide a specific figure.

Colleen Bentley-Adler, a spokeswoman for CSU, said payments to the system’s vendors, contractors, consultants and utility providers would be delayed by a state freeze. But the real pain will come in August if a budget is not in place, as the university prepares to accept 12,000 to 15,000 new students, she said.

“We need to have funds and services in place to provide classes for them,” she said. “It gets a little frightening the closer you get to the fall without a budget.”

Bentley-Adler said the university is already examining possible fee increases, employee layoffs or decreased enrollment caps in the spring and winter.

Jean Ross, executive director of the California Budget Project, a left-leaning think tank, said that “certainly the pressure [of the Supreme Court decision] can help” prompt lawmakers to break their deadlock. “The flip side is, real people and real businesses get hurt in the meantime.”

The pressure didn’t seem to be pushing lawmakers toward a compromise Wednesday. Legislative leaders said they see little hope for meeting the July 1 deadline, and again reported no progress in budget negotiations.

Senate Democrats held a floor vote on the same budget proposal that Republicans had rejected Tuesday. Republicans again did not cast a single vote in favor of the plan, which includes a half-cent sales tax hike.

Senate Republican Leader Jim Brulte of Rancho Cucamonga called the proposal “nothing but a continuation of what you all have done for the last three years that has nearly bankrupted this state.”

Democrats say they have made major spending cuts in programs, and will not slice more deeply until Republicans compromise on taxes.

Senate President Pro Tem John Burton (D-San Francisco) said he intends to keep bringing the budget up for votes for the rest of the week in hopes of, if not swaying Republicans, then perhaps embarrassing them.

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Times staff writers Peter Hong and Dan Morain contributed to this report.