State Budget:
No Progress, and Furloughs Are Back

The impasse over the 2010-11 state budget is 51 days old and looks to continue indefinitely. However, there is additional pressure on the Legislature to act, as the California Supreme Court on August 18 said the governor can furlough a large part of the state workforce until the court decides a case on the legality of furloughs.

Also Controller John Chiang said the time is approaching when he will be forced to issue IOUs (see below).

As far as any legislative action on the budget, there was no progress last week. In fact, the Big Five (governor and four legislative leaders) have not met since mid-June. About the only development of interest was the parliamentary action by Democratic leaders on August 18 to remove budget trailer bills from the Legislature's "inactive file." The Sacramento Bee reported August 20 that the governor has privately suggested borrowing $2 billion from the public employees' retirement system, to be repaid by savings from pension reforms. Critics said this will make future deficits worse.

Other budget-related news:

Controller Warns That IOUs May Be Issued Soon. State Controller John Chiang said August 18 that the state may resume issuing IOUs in two to four weeks because the Legislature and governor have failed to address California's continual budget problems.

While the controller noted that there is "no silver bullet" to solve the current budget deadlock, he said this year's budget problems are unlike last year's. In 2009, California's economic problems were tied to the global recession. This year, Controller Chiang said, the entire budget problem could have been avoided if the Legislature and the governor had taken action.

Speaking to the Sacramento Press Club, Controller Chiang said that "gimmicks" and "get out of town" budget schemes by the Legislature and governor are to blame for the state's ongoing budget deficits since 2007. "I must be clear that this year's looming cash crisis is fundamentally different than last year's," he said. "Importantly, the fiscal crisis we face this year is 100 percent political, and the only thing standing in our way is the absence of leadership."

The controller estimates that by late October, the state government will run out of cash to pay its bills. The controller said he will begin issuing IOUs before that happens. He paused prior to estimating when IOUs would be issued, but if his estimate of issuing IOUs within the next two to four weeks pans out, IOUs could be issued as early as September 1.

Legislature Appropriates $654 Million More for 2009-10. Legislation to appropriate $654 million for 2009-10 spending that exceeded appropriations (SB 849, Ducheny) was approved by the Assembly on August 16 on a 71-0 vote. About two-thirds of the total is for the Department of Corrections' contracted medical services. (CalTax: Every year, the bureaucracy spends more than it is appropriated, requiring these augmentation bills. This process hides the level of spending when the budget is passed. When proponents of a budget compromise say it is balanced with a certain level of budget cuts, this is not the case. The cuts will be much less than advertised due to this practice of supplemental appropriations bills.)

Schools' Federal Bail-Out Dollars to Help State Budget? California schools are slated to cash in on $1.2 billion as a result of the new federal bail-out bill for government employees. Senate President Pro Tempore Darrell Steinberg said some of the money can be used to reduce the state's budget gap.

According to The Sacramento Bee's Capitol Alert, the Department of Finance can't use the money, as the funds go directly to schools. But Senator Steinberg said in an August 12 interview that he assumes the money can be used as a budget solution. The state would get $600 million more of the money than the governor anticipated, Senator Steinberg said.

The Legislative Analyst's Office said, "Given that the state is still negotiating what level of support it will provide schools, it could be that the state will take that into consideration." (Source: The Sacramento Bee's Capitol Alert, August 16.)

Gray Davis Says State Must Reform Pensions. Former Governor Gray Davis, who signed legislation substantially enriching state pension benefits, now believes pension reform is essential. He said the math supporting the increases in pension benefits was "wrong, big-time." He added: "You just can't afford the benefits that have been promised, because all the actuarial studies turned out to be wildly optimistic. We have no choice now, and if I was governor I would be doing exactly what Arnold is trying to do, which is require people to contribute more to their pensions."

The former governor added: "Pension reform is going to occur because people understand that elected officials and state employees cannot live demonstrably better than the rest of California." (Source: Reuters, August 16.)

Sacramento Taxpayers Pay for Police Officers to Respond to Spending Lobby's Protest. A protest staged by government employee workers ended August 18 with the arrest of 22 individuals. Organizers for the protest had failed to secure permits from the City of Sacramento, and more than 40 Sacramento police officers were required to shut down a city block when protesters intentionally got in the way of motorists.

About 100 protesters, some whom are blind and in wheelchairs, stopped traffic on the street adjacent to the north steps of the Capitol. The protesters were opposing proposed reductions in increased spending to In-Home Supportive Services, Medi-Cal, CalWORKs and other public health programs.

Police officers told The Sacramento Bee that some of the protesters showed no fear of getting arrested. The rally featured a number of protesters on hospital gurneys and a 10-foot-tall likeness of Governor Arnold Schwarzenegger holding a bloody ax.

Sacramento Police Department Sergeant Norm Leong said all of the arrested individuals face misdemeanor charges, and explained that while the department supports freedom of speech, protesting in the middle of the street is illegal.

According to law enforcement officers at the protest, had the protesters applied for and purchased a protest permit, the city would have been able to recoup some of its costs. (Sources: CalTax Staff, August 18; and The Sacramento Bee, August 19.)

Cal-TaxReports, August 23, 2010

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