Two on the budget crisis

This Reuters article remains one of the best overviews of the California budget crisis in the press at the time. California partisan politics deepen budget crisis Tue July 01, 2003 08:51 PM ET By Michael KahnSAN FRANCISCO, July 1 (Reuters) - California staggered into the new fiscal year on Tuesday with no plan to plug a $38 billion shortfall, forcing a freeze on hiring and payments to state contractors and leading officials to draw up plans to cut the salaries of many state workers to minimum wage.The fiscal crisis, which threatens California's already shaky credit rating, came amid warnings the nation's most populous state will run out of money in August.This has forced California officials to draw up plans to pay state workers not eligible for overtime the minimum wage and slap a freeze on checks going to vendors for business performed for the state on or after July 1, officials said.They added that the plan to cut many salaries back to the minimum wage would probably not take effect until August. Meanwhile Gov. Gray Davis announced a hiring freeze amid warnings that the state may have to lay off thousands of state workers if no budget deal is reached soon.Analysts warned that a deeply partisan legislature may make quick resolution of the crisis impossible, especially with Republicans leading a campaign to have Davis recalled in a special election.Lawmakers have so far been unable to craft a budget for fiscal year 2003-04 as Democrats insist on tax increases to go along with program cuts while Republicans balk at the idea of any new taxes.Last year, the governor did not sign a state budget until September. But the situation is more pressing this year because of the sheer size of the shortfall facing a state hurting from a slowing national economy and increased spending during a dot-com boom of the late 1990s when California coffers were filled with billions of dollars in surplusesThe governor has proposed a budget that calls for tax increases, a $10.7 billion debt financing plan and deep spending cuts to help close the shortfall.Democrats control the legislature but need Republican votes to secure the two-thirds majority needed to pass a budget bill -- a hard task given Republican opposition to tax hikes and Democratic resistance to deeper spending cuts.Sherry Bebitch Jeffe, a political scientist at the University of Southern California, said one sign of the intransigence among lawmakers is the threat from the top Senate Republican leader to work to unseat any member of his party who votes for tax increases.The deepening problems have already sparked credit downgrades that has driven California's bond rating to a level lower than all but two states -- Louisiana and New York. ***************************Two weeks later, the Sacramento Bee added this important update. What happened last weekBee Staff Published 2:15 a.m. PDT Sunday, July 13, 2003* The Assembly rejected a Republican plan to balance the budget without tax increases by cutting state bureaucracy by 4 percent and other measures.* Four top legislative leaders reported progress but came to no agreement after the first 'Big Five' budget meeting with Gov. Gray Davis since the fiscal year began without a budget deal.(In recent years the governor has called meetings with the four majority and minority leaders of the state Legislature to negotiate about the budget -- hence the name, 'Big Five' for the meeting -- BJ)* A compromise to swap local governments' sales tax revenue for property taxes gained momentum.* Senate Republicans proposed 130 budget bill amendments that amounted to a net $2.7 billion in savings -- $3.7 billion in cuts and $1 billion in restorations by eliminating fee hikes proposed by Democrats. Coming up Tuesday: The state Senate is scheduled to take up dozens of GOP budget cut proposals.Friday: Legislators' yearly monthlong summer vacation is scheduled to begin, provided a budget bill has been enacted.------------------------------------------------------------------------ Q: How much is the state's budget standoff costing taxpayers?A: Davis and his finance director, Steve Peace, have said that the state loses $20 million each day that it operates without a budget in place.The figure includes costs that California is paying that it otherwise wouldn't if a budget -- and budget cuts -- were put in place before the July 1 beginning of the fiscal year.'Because it's delayed, you are losing savings each day,' said Finance Department spokeswoman Anita Gore. 'It's just a combination of all those hundreds of little cuts.'If no budget is passed by the end of August, Gore said, California will have lost out on about $2 billion in savings that would have been achieved had the new, leaner budget been in place.