California meltdown

A weekly flyover of the state budget crisis

From warnings of IOUs to the real deal: Herewith the latest news—local and state—from the week that was as lawmakers fought over how to fill a $24.3 billion hole in the 2009-10 budget.

June 24: State Controller John Chiang announced he would be forced to issue registered warrants—IOUs, in effect—beginning July 2 if the governor and Legislature didn’t come up with “immediate budget and cash solutions.”

June 25: The League of California Cities warned that it will sue the state if its new budget includes “stealing” local gas tax funds. The state is considering a plan to divert $1.7 billion from the local share of gas-tax funds over the next two years.

June 25: Fitch Ratings downgraded California’s credit rating from A to A-minus, two steps above junk-bond status. This followed similar downgradings from Moody’s and Standard & Poor’s. The state now has the lowest credit rating in the country.

June 26: Gov. Schwarzenegger said he planned to add a third furlough day each month to state employees if lawmakers didn’t send him a budget package that filled the $24.3 billion 2009-10 deficit.

June 26: The Butte County State Budget Coalition released a press release detailing the local impacts of the Republicans’ “cuts-only” budget, including: loss of more than 2,500 home care jobs and 200 CalWORKS (welfare-to-work) child-care jobs, and the services they provide (total cost: $20.6 million); loss of $6.6 million in state parks revenue; loss of health insurance for 3,990 children through the Healthy Families program (cost: $4.4 million); loss of CalWORKS benefits for 9,840 people (cost: $42.6 million).

June 28: Gov. Schwarzenegger backed off his proposal to eliminate CalWORKs and Healthy Families, proposing instead to reduce CalWORKs benefits by 6 percent.

June 29: Butte College announced it expects to absorb major budget hits at a time when enrollments are projected to be up by 15 percent. The cuts will come mainly in the nursing program and workforce and economic development, as well as student services such as counseling and financial aid.

June 29: Democrats in both the Assembly and Senate passed a majority-vote budget (no tax hikes) solving the deficit problem (by hiking fees on oil drilling and cigarettes and making deep cuts) and leaving a large reserve. The governor vowed to veto it.

June 30: State Treasurer Bill Lockyer warned that if the state was forced to issue IOUs, its credit rating could be downgraded to a BBB level, which could incur an additional $8 billion in interest costs—52.5 times the amount spent on state parks in a year.

June 30: Despite a marathon session, lawmakers were unable to break a standoff on a Democrat-sponsored stop-gap measure to cut education funding by $3.3 billion before midnight, the end of the fiscal year. IOUs will start going out, and the governor will impose a third furlough day on state employees.