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Without a budget, the storm could be on horizon

Posted: July 1, 2009 10:16 p.m.
Updated: July 2, 2009 4:30 a.m.

The clock struck midnight and California legislators didn’t pass a budget Wednesday.

Services haven’t stopped — but some government officials warn this is the calm before the storm.

The budget proposed by California Senate Democrats fell two votes shy of the two-thirds majority needed to pass the legislature. The state Senate vote may have been a moot point since Gov. Arnold Schwarzenegger promised last week to veto the budget proposed by Senate Democrats.

Without an approved budget, state Controller John Chiang said California will begin handing out IOUs, known as registered warrants.

The IOUs, or registered warrants, are like “rubber checks” issued by the state and can’t be cashed until Oct. 1, said Mark Saladino, L.A. County Treasurer. The warrants will be used to pay businesses that contract with the state, income-tax refunds for individuals and businesses, state financial aid to college students and social services.

Budgetary progress was further stifled by the Legislature’s failure to meet Wednesday, as state Sen. George Runner blamed the inactivity on partisan frustrations.

“We’re just waiting,” said Runner, R-Antelope Valley. “The Democrats care about the IOUs but don’t want to make the hard choice to reach a solution,” he said.

“If we don’t act (Wednesday), we will be issuing IOUs tomorrow (Thursday).” he said.

Runner said it’s unclear when the budget talks will resume.

L.A. County will receive $450 million in IOUs for the first three months of fiscal year 2009-10.

As the budget proceedings in Sacramento hastened to a fiscal meltdown, the county’s top financial officials presented the county’s three-month fiscal forecast on Tuesday to the Los Angeles County Board of Supervisors.

“At this point, we just intend to take (the IOUs) into the treasury and hold (registered warrants) in the safe, literally until they can be cashed.”

The county’s financial picture between July and September doesn’t look as imposing as the state’s, said Wendy Watanabe, L.A. county auditor. Funding from the state has been secured through the first quarter of the 2009-10 fiscal year, she said.

“We will be receiving $1.3 billion (in state funding) in the beginning of July. That will keep us whole for the first three months (July, August and September).” Watanabe added.   

However after Oct. 1, the state will run out money and the county won’t lag far behind, L.A. county CEO William Fujioka said. Financial projections show the county bleeding red ink by November, which may force the county to issue its own set of IOUs, he added.

“If the situation persists for months and months and months, we’re getting ready to (issue IOUs) too, as we got ready in 1992. It never got to that then, and we’re hoping it will not get to that now — but we’ll be prepared in case it does,” he said.

Even if registered warrants are issued by the state, College of the Canyons and local school districts expect to receive state funding.

“We’re one of the top priorities along with fire and police,” said Judy Fish, superintendent of Saugus Union School District.

Still, some uncertainty remains.

“There are so many unknowns,” she said. “It’s hard to say what it would mean for us.”

Newhall School District Superintendent Marc Winger said the state’s constitution outlines that schools will receive funding. He said they have never run into a situation where a district does not receive state money.

If school districts were to receive IOUs instead of payments, the Newhall district has “money in the bank,” he said.
College of the Canyons anticipates state funding to continue.

“The IOU issue looks like it will affect local government, social services, private contractors and vendors,” said college spokesman John McElwain. “(That’s) the way we understand the language now.”

The community college received information that payments to community colleges for July will be made.

“It looks like we’re going month-to-month,” he said.

The specter of no state budget by October frightens L.A. County Department of Public Social Services officials. Programs such as CalWorks rely on state and federal funding to aid needy families in Los Angeles.

Without a state budget, CalWorks benefits would cease on Oct. 1, said Phil Ansell, Social Services director. More than 100,000 families countywide would become homeless, including more than 1,300 families in the Santa Clarita Valley, he said.  

“The reality is, if they don’t have a budget by October the state as a whole is in trouble,” said Shirley Christensen, Social Services special assistant.

CalWorks may be funded with state and federal dollars, but the county bares the responsibility to deliver the service to recipients, Fujioka said. He and other top county officials aren’t sure whether the county will be forced to pick up the state’s part of the CalWorks tab in October, when the state will stop contributing its portion.

The Associated Press and Signal reporter Tammy Marashlian contributed to this reporter.


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