California outdoes itself with budget mess

By Evan Halper

Sept. 1, 2008 12 AM PT

Times Staff Writer

SACRAMENTO —

As the Legislature lurched to its close Sunday with no budget in place, California toppled its own record for fiscal dysfunction.

Never in recent memory has August ended without a spending plan, so the state is now thrust into uncharted territory.

Gov. Arnold Schwarzenegger’s administration has been busily preparing a blueprint for keeping the state afloat through the fall.

The governor told Fresno Bee editors last week that he would wait until winter to sign spending bills into law, if necessary, to get what he considers a decent budget.

That means one with a mechanism to limit future spending, with temporary taxes to help wipe out the state’s $15.2 billion in red ink and without the multibillion-dollar borrowing from local government and transportation accounts that some lawmakers appear to favor.

Others in the Capitol say the stalemate may indeed last into next year, leaving the incoming class of legislators, many of whom will be rookies elected in November, to solve the problem.

Meanwhile, hospitals, community colleges, day-care centers and other facilities dependent on state funds go without the money they need to operate.

“There is no victory for anybody when we . . . come into Monday and have no budget,” said Mike Villines of Clovis, leader of the Assembly’s Republicans. “I don’t think Californians are sympathetic.”

With the deadline for legislative business passed, lawmakers can no longer work on regular lawmaking. But they will still be tethered to Sacramento as they wait for their leaders to strike a budget deal.

The past record for state budget delay was set in 2002, when Gray Davis was governor and the Legislature did not pass a spending plan until Aug. 31 -- the final day of its session.

At the core of that impasse was a dispute over taxes. The same is true now, 63 days into the current fiscal year.

The governor’s office held a meeting last week with two former state finance directors and former Senate Republican Leader Jim Brulte, seeking advice on how to make it to November or beyond without a budget.

The group, according to some participants, discussed the state’s options for getting cash once it runs out in a month or so; whether the governor has the authority to release emergency funds to health clinics and other programs; and how California will be able to repay arrears on state services once a spending plan is finally in place.

In the case of some large education and health expenditures, the state cannot make cuts retroactively. So some reductions that lawmakers hope to make to save money would apply only to the portion of the year when a budget is in place.

Administration officials say the costs of delaying such reductions, together with the costs of securing short-term loans to keep the state solvent, could add as much as $1 billion to the budget shortfall if the impasse drags through the fall.

Meanwhile, the arguments continue.

Republicans unveiled a plan Saturday that would rely on borrowing against the lottery and on deep program cuts. A vote on their proposal is expected soon, though it has no support from Democrats.

“There is no doubt in my mind that the silent majority does not want taxes,” Villines said.

Democrats and the governor say closing the budget gap without new levies would cripple state services. Republicans blocked the latest proposal that included them -- along with the spending restraints promoted by the governor -- in the state Senate on Friday.

“We compromised more than we thought prudent,” said Senate President Pro Tem Don Perata (D-Oakland). “We are done.”

According to people involved in confidential budget talks, Democrats in the Assembly have been looking for ways to raise taxes without Republican votes. California requires a two-thirds majority to pass a budget or raise levies; in the existing Legislature, that means two GOP votes in the Senate and six in the Assembly.

Assembly staffers have been scurrying to find loopholes that might permit a tax hike on a simple majority vote, said those involved in the negotiations. One proposal would have the effect of increasing sales taxes by eliminating a tax cut put in place several years ago.

Legislative lawyers have suggested the plan could be approved without Republican votes. But it would almost certainly wind up in court. Anti-tax activists hold the two-thirds vote requirement sacred.

As the standoff continued, some Californians had already begun paying the price.

Earlier in the summer, checks stopped going to thousands of healthcare clinics, nursing homes, child care facilities and other providers of government services.

The longer the delay, the more dire their situation.

By the end of September, according to state Controller John Chiang, $12 billion in payments will not have been made.

“We had to suspend our payroll for the last week of August to all our staff and providers,” said Amparo Ortiz, administrator of Casa Healthcare, which provides care for developmentally disabled children.

The state already has missed $250,000 in payments to her, and she is borrowing from friends and relatives. Her staffers earn the state minimum wage of $8 an hour and do not have savings to fall back on.

“What are we to do? Where do we turn?” Ortiz asked. “If we take out loans, the interest rates will kill us, not to mention all the late charges we are going to receive for our mortgages we don’t pay on time.”

evan.halper@latimes.com

Times staff writers Patrick McGreevy and Michael Rothfeld contributed to this report.

(BEGIN TEXT OF INFOBOX)

Late, later, latest

As of today, the California Legislature is 63 days late in passing a budget, breaking the record for the last 30 years.

The Legislature’s 10 tardiest budgets since 1977-78:

‘90-91: 28

‘92-93: 60

‘95-96: 33

‘98-99: 42

‘97-98: 42

‘01-02: 22

‘02-03: 62

‘03-04: 29

‘04-05: 29

‘07-08: 52

Notes: Fiscal years. The California fiscal year begins July 1.

Source: California Department of Finance

Los Angeles Times

What goes unpaid

Because there is no budget in place, the state is prohibited from paying thousands of providers of government services. If the deadlock drags on, the state will have withheld $12 billion in total payments by the end of September.

What does not get paid:

State universities (except payroll)

Nursing homes, hospitals and other Medi-Cal providers

Community colleges

Cal Grants for students

K-12 “categorical” programs such as special education

Service centers for the developmentally disabled

Some mental health programs

Vendors

Sources: State controller’s office, California Senate

Legislature: A flurry of last-minute bills are passed. California, B1

Labor: A deficit looms for the state’s unemployment benefit fund. Business, C1