California meltdown

A weekly flyover of the state budget crisis

There’s a one-word synopsis for what happened this week: impasse. Here’s the rundown:

July 2: The state started printing IOUs. That’s because the night before, Gov. Arnold Schwarzenegger and the Republican minority in the Legislature had turned back a Democratic effort to close part of the deficit and forestall the IOUs by enacting last-minute cuts in the 2008-09 education budget. It was all or nothing, the governator said: Either cut the full $24.3 billion or forget it. The result: The state began printing IOUs, the deficit immediately jumped to some $26.3 billion, and lawmakers were no closer to an agreement.

July 2: Senate President Pro Tem Darrell Steinberg told the Sacramento Bee that Senate Democrats had given up efforts to increase taxes on tobacco or establish an oil severance tax. A controversial proposal to “borrow” $2 billion from cities and counties remained on the table, he said.

July 2: Several banks and credit unions, including Tri Counties and Golden 1 locally, announced they would accept state IOUs.

July 3: The National Park Service announced that it was prepared, under terms of prior agreements, to take over several state parks if legislators closed them to help balance the budget. Included were Angel Island, Mount Diablo, Point Sur and beaches at Fort Ord Dunes, Point Mugu State Park and Border Fields.

July 4: The Sacramento Bee reported that the 22-campus California State University system planned to implement two furlough days per month for all of its employees, saving $275 million and preventing an undetermined number of layoffs. The CSU has been ordered to trim $584 million from its budget.

Two of the system’s labor unions—those representing nonacademic employees—had agreed to the plan, but the powerful California Faculty Association was holding out. The group, which represents 23,000 professors, librarians and coaches, wanted to know how many jobs would be saved.

July 6: Chico State University announced that it would accept transfer and other upper-division applications only from those students who live in or attend a college in the university’s service area. The move is part of the university’s strategy to cut enrollment in response to funding cutbacks.

July 6: News that Fitch Ratings has downgraded the state’s long-term bond rating from A- to BBB—one step above junk-bond status—is reported widely in the daily press. The downgrading potentially increases the cost of borrowing money for public-works projects by billions of dollars.

July 6: Assembly Speaker Karen Bass boycotted a meeting of the Big 5 (legislative leaders and governor), charging the governor was pushing items “unrelated” to the budget process. She was referring to Schwarzenegger’s call for a two-tiered pension system and changes in welfare eligibility.

July 7: Organizations representing health and social-services recipients and providers rallied at the Capitol at noon, in an event called the “People’s Day of Reckoning: The State Budget Is Killing Me!” Their plea: Balance the budget with both cuts and new taxes; don’t put the entire onus on the poor and sick. About 120 protesters, most in wheelchairs, blocked the hallway outside the Governor’s Office. Fifteen were cited when they refused to leave at closing time.

July 7: The Franchise Tax Board announced it would accept state IOUs for payment of state personal and corporate taxes.