ALAMEDA, Calif. — In what has become something of an annual Sacramento ritual, California Controller John Chiang released a letter to lawmakers and the governor warning of the negative consequences of failing to enact a budget that is both on time and balanced.
“Should the Legislature and governor fail to forge a timely budget agreement, the state will face another debilitating cash crisis for a fourth consecutive year and expose California’s taxpayers and economic recovery to the risk of IOUs, delayed payments, and further credit rating downgrades,” Chiang wrote this week.
His letter made reference to the state’s 2009 budget standoffs, which helped create cash-flow problems for the state government.
That year, the controller’s office issued about $2.6 billion in IOUs, formally known as registered warrants, to some state creditors to preserve cash for those with higher legal standing, such as bondholders. The office also delayed making $4.7 billion in other payments owed by the state government.
Chiang released the letter at a critical moment in this year’s budget process.
The newly elected governor, Democrat Jerry Brown, has built his spending plan around a special election to obtain voter approval for an extension of temporary sales, income and motor vehicle taxes.
That election needs to take place before the end of June, when the taxes are slated to sunset. To get an election in June requires legislative action in March.
The Brown administration has floated March 10 as the deadline to maintain that schedule, though the date is more likely set in sand than in stone. If March 11 rolls around without a deal, negotiations are likely to continue.
The trick is getting votes from some minority Republicans to obtain the two-thirds supermajority needed to approve the tax extension ballot questions.
Assembly Speaker John Perez, D-Los Angeles spoke to the Sacramento Press Club Wednesday, and according to published reports he said he’s not interested in seeking loopholes that might get the measure on the ballot with a majority vote, as some have suggested.
Perez said there is “room for optimism” that two GOP votes can be found in both the Assembly and the Senate. Reporters asked the speaker if he was open to public employee pension reforms Republicans say they favor, and replied that “all options are on the table.”
The good news, according to Chiang, is that if California is in a relatively solid cash position should lawmakers manage to pull together a budget agreement soon.
“Should the governor’s January budget plan be implemented as proposed, projections show that the state will have the ability to meet all of its payment obligations for the remainder of 2010-11, as well as into the new fiscal year beginning on July 1,” wrote Chiang, a Democrat.
“With an enacted budget, the state will be in position to secure its perennial cash-flow borrowing — in the form of garden-variety revenue anticipation notes — within the first six weeks of the new fiscal year,” according to the controller.
The picture is much less attractive should the state fail to adopt a timely balanced budget.
While California’s cash position should be adequate to see out the remainder of fiscal 2011, which ends in June, Chiang said that if nothing is done that position will drop below prudent levels in July, the first month of fiscal 2012.
“Because the state cannot delay action until the moment it runs out of cash, my office may be obligated to deploy invasive cash-conservation options far in advance of July 2011,” Chiang wrote.
California general obligation bonds carry ratings of A1 from Moody’s Investors Service and A-minus from Fitch Ratings and Standard & Poor’s.
After Brown announced his budget proposal in January, California Treasurer Bill Lockyer said his office would not hold its traditional spring GO bond sale, instead waiting until the fall to sell new bonds after a budget is in place.