Democrats’ Budget Plan Fails, Calif. Close To Issuing IOUs

On Wednesday, Democratic lawmakers failed to obtain the necessary two-thirds majority vote to pass a key component of their proposal to close California's budget deficit, the San Francisco Chronicle reports.

Lawmakers voted on a bill to reduce state spending by $11.4 billion, which was one element of the Democrats' 20-bill package. They did not vote on the Democrats' proposals to raise cigarette taxes and other fees.

The vote fell largely along party lines, with Democrats supporting the proposal in a 48-30 Assembly vote and a 22-16 Senate vote. Fifty-four Assembly votes and 27 Senate votes would be necessary to pass the plan.

Comments, Reaction

Republicans say they rejected the bill because it is part of a larger package that includes tax increases. They also criticized the Democrats' plan for not providing the full $24.3 billion Gov. Arnold Schwarzenegger (R) has said is needed to cover the state deficit.

Assembly Speaker Karen Bass (D-Los Angeles) said she found it "ironic" that Republicans did not vote for the spending cuts because they were not large enough "when voting yes would not prohibit additional cuts."

Senate President Pro Tempore Darrell Steinberg (D-Sacramento) said he would consider new budget ideas but would not support Schwarzenegger's proposal to eliminate programs such as Healthy Families, California's Children's Health Insurance Program (Yi/Buchanan, San Francisco Chronicle, 6/25).

Steinberg said, "This is a matter of conscience. We have a sacred obligation, I would call it a moral obligation, to stand up for the least among us" (Goldmacher/McGreevey, Los Angeles Times, 6/25).

In addition, Steinberg's spokesperson Alicia Trost said, "We understand that the governor is comfortable eliminating health insurance for 950,000 poor children but not signing a voluntary tax on a pack of cigarettes. We're clearly not."

Next Steps

Both Bass and Steinberg scheduled another round of Assembly and Senate floor sessions for today (San Francisco Chronicle, 6/25).

Democrats say they are considering alternatives to pass elements of their budget proposal with a simple majority vote. However, such action would take 90 days to go into effect -- if Gov. Schwarzenegger signed them -- and could weaken some of their estimated savings.

Schwarzenegger Proposes New Cuts

On Wednesday, Schwarzenegger introduced two new budget proposals after lawmakers rejected his plan to borrow nearly $2 billion from local governments.

One proposal calls for ending California's contributions to state workers' health benefits, which would reduce state spending by $1 billion. The governor also proposed cutting state funding for child welfare and foster care services (Los Angeles Times, 6/25).

IOUs Around the Corner

Prior to the Legislature's budget vote yesterday, state Controller John Chiang (D) said he would begin issuing IOUs next week if lawmakers fail to develop a budget agreement.

Chiang said he would send the first IOUs on July 2 to help California meet state Constitutional funding obligations. The state is not expected to run out of cash until the end of July (San Francisco Chronicle, 6/25).

The controller said he expects to issue more than $3 billion in IOUs next month to sustain funding for the elderly, blind, disabled and other populations (Los Angeles Times, 6/25).

If the state runs out of money, funding priorities go first to education and bond holders, and then to:

• Debt;
• State employee payroll;
• Medi-Cal, California's Medicaid program; and
• Pension obligations.

Payments to other state-funded programs, such as community health clinics, could be scaled back or eliminated if the state runs out of funds (Lin, AP/San Diego Union-Tribune, 6/24).

Chiang also warned that budget inaction could cause the estimated $2.8 billion cash shortfall in July to grow to $6.5 billion by September (San Francisco Chronicle, 6/25).

"Next Wednesday, we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," he said in a statement. Chiang added, "Unfortunately, the state's inability to balance its checkbook will now mean short-changing taxpayers, local governments and small businesses" (Steinhauer, New York Times, 6/25).

Other Budget Coverage

Headlines and links for other news on California's budget are provided below.

• "Democrats' Budget-Balancing Plan Crashes and Burns" (Wiegand, Sacramento Bee, 6/25).
• "State Senate Rejects Latest Budget Fix" (Robertson, Sacramento Business Journal, 6/24).
• "Chiang: State Will Issue IOUs Starting July 2" (Sacramento Business Journal, 6/24).