State will pay for another late budget

Times Staff Writer

California starts the new budget year today -- and once again no budget is in place.

Legislators are making little progress closing a $15.2-billion shortfall. Democrats demand new taxes. Republicans say that is out of the question. Meanwhile, their inability to strike a deal threatens millions of Californians who rely on the government for healthcare and other services.

Budget delays are not unusual. But the consequences will be particularly harsh this year. Many of the healthcare clinics and other service providers that have used private loans to get by during past budget stalemates are unlikely to have easy access to such cash this year, as a result of the ongoing credit crunch brought on by the mortgage crisis.

Independent service providers aren’t the only ones that could soon be scraping to find money. Short-term bonds that finance officials rely upon to replenish state coffers cannot be sold without a budget in place, and getting them to market takes at least a month.


The state may have to turn to a syndicate of investment banks for short-term financing, on terms that could prove costly, said H.D. Palmer, deputy director of the state Department of Finance. The financing could cost $140 million more than bond borrowing would have, he said.

“In this budget environment,” he said,” I can think of a lot better uses for that money.”

Despite the grim state of affairs at the Capitol, Gov. Arnold Schwarzenegger and lawmakers Monday played down their failure to get a budget together and the dim prospects of reaching a deal soon.

“I don’t know at what stage they are in at this time,” Schwarzenegger said at a news conference. “I know one thing, they are all working. . . . Everyone knows we are short on time. I think everyone knows it is a complicated, difficult budget.”


Schwarzenegger, who has been playing only a minor role in budget deliberations of late, turned the microphone over to Assembly Speaker Karen Bass.

“We have been working,” she said. “We spent four hours yesterday working.”

Democrats in both houses have released budget plans that call for as much as $11 billion in new taxes. But so far they have not identified which taxes they would like to raise.

Bass demurred again Monday.


“We will see what happens as the process moves forward this week,” she said.

The governor later joked about his optimism that the state will not run out of cash by pulling out a personal money clip full of bills. “I still have some left,” he said.

Not all Republicans were in such good spirits.

“Until we get to a spot where Democrats realize that taxes are not going to work, it will be tough to move the budget forward,” said Assembly Republican Leader Mike Villines of Clovis.


Credit agencies will be watching closely: California has the second-lowest credit rating among states in the country, and some economists say a downgrade could be coming. The last time the state’s creditworthiness was downgraded was during the budget crisis of 2003, when its bond ratings fell to nearly junk status. The shortfall lawmakers faced then was roughly the size it is now.

Bob Kurtter, a managing director at Moody’s Investors Service, said his rating agency is less concerned about the state’s meeting the July 1 deadline than it is about the quality of the budget. When lawmakers can’t agree on how to close a large deficit, they tend to fall back on accounting gimmicks and other short-term solutions frowned upon by rating agencies.

Legislative staff members already are devising plans that include such options.