California still doesn’t have a budget for the current fiscal year, which commenced on July 1. Without a budget now for nearly a month, California faces additional pressure to conserve cash. The following explains why.
Though often (and perhaps conveniently) forgotten, as a general rule our state Constitution prohibits expenditures in the absence of a budget. Because of that limitation, a great deal of spending – for childcare centers, health care providers, centers for the developmentally disabled, many county services, contractors, and more -- was already suspended as of July 1.
However, notwithstanding that general rule, the Constitution as well as federal law and public safety require some spending whether or not there’s a budget. Examples of such mandated or essential service spending include certain funds for public schools, debt service, child welfare programs, public safety, disaster relief and more. Those activities require cash and therefore the state must always have ready access to cash sufficient to meet those essential or mandated requirements.
Moreover, if we run out of cash, we will be forced to access the Revenue Anticipation Warrant (RAW) market for that cash. To understand the nature of the RAW market, one must first understand its cousin, the Revenue Anticipation Note (RAN) market.
