Budget Update
Failure to resolve California’s estimated $24.3 billion deficit prior to the start of the new fiscal year, which began on July 1, resulted in State Controller John Chiang issuing IOUs to cover state expenses. Further, the failure of our elected leaders to come to a resolution before the deadline has caused a greater schism between them. As a result, budget negotiations have deteriorated. Governor Arnold Schwarzenegger’s demand for additional budget cuts, suspension of Proposition 98 (the voter-approved funding mechanism that mandates state spending on education) and budgetary reforms has outraged Democrat legislators and special interest groups.
During Sunday’s discussions, after Governor Schwarzenegger reiterated his demand for budget reforms to be part of any budget fix, the Speaker of the Assembly, Karen Bass (D-Los Angeles) walked out of the negotiations and began boycotting future negotiations. Further, the governor’s desire to suspend Proposition 98 was, in her words an “unacceptable” option.
Since Sunday’s breakdown, the war of words has escalated between the governor, Democrat legislators and special interest groups. Democrat legislators, conversely, repeated their frustration with the governor, citing his unreasonableness and inability to recognize the immediate needs of California and claiming he has wasted time and cost the state over $3 billion in savings.
While Governor Schwarzenegger and the legislature remain embroiled in conflict and inaction, special interest groups are taking action. Anti-tax groups continue their radio and media campaign opposing proposed tax increases. Health and education groups continue to organize protests at the State Capitol against budget cuts. Yesterday, the California Teachers Association began airing political ads opposing Governor Schwarzenegger’s proposed Proposition 98 suspension.
Some observers are wondering if legislators will feel pressured to act by July 31, the deadline for California to retroactively cut $1 billion in expenses. It’s not clear, however, that Sacramento has any solid date for resolving the $23.6 billion deficit.California’s bond rating has dropped from “A-” to “BBB,” the lowest possible rating.
A common sense bill, related to California’s budget woes, is moving through the Assembly.
AB 1506 would allow people who receive IOUs from California to pay the state with those IOUs, if they owe the state money in the form of DMV fees, taxes, and other debts.It was proposed by Assemblyman Joel Anderson. State Controller John Chiang began issuing IOUs last week. IOU holders, who need immediate cash, are currently selling their IOUs for less than face value.
The Assembly Business and Professions Committee approved AB 1506 with an 11-0 vote on July 7. It now awaits a vote by the Assembly Appropriations Committee.