Who’s going to blink first?
That’s what California’s budget battle has come down to as the Legislature and the governor try to reach some agreement that will allow the state to pay its bills next week with cash and not just promises.
Gov. Arnold Schwarzenegger is about the only person in Sacramento still looking for the immediate perfect compromise that will close the state’s $24.3 billion budget gap and hopefully end the fiscal squabbling until January, when his 2010-11 budget is due.
Everyone else is pretty much resigned to putting together a stopgap plan that will keep the state from having to issue IOUs next week, clearing the way for more weeks of talk and budget stalemate.
On Thursday, the Assembly managed to vote out a bipartisan package of bills that would provide the state with about $4.5 billion in needed cash, enough to stave off the IOUs for most of the summer.
But there wasn’t a Republican vote for any of the bills in the Senate and the governor said he would have vetoed them anyway.
“The current proposal in the Legislature amounts to nothing more than a piecemeal approach … because if doesn’t solve the problem,’’ Schwarzenegger said in a statement.
But California actually faces two problems and the question now is which one is worse.
First, there’s the $24.3 billion hole in the budget. Until that’s settled, with a solution that passes the smell test for the banks and the bond rating companies, the state is going to have a hard time getting the traditional loans it needs to smooth the normal ups and down of its cash flow.
Then there are the IOUs. If California is forced to start paying its vendors with warrants – essentially interest-bearing promises to give them real money sometime in the future – “the consequences will be immediate and long-lasting,’’ state Controller John Chiang and state Treasurer Bill Lockyer said in a joint statement urging the governor and the Legislature to agree on a short-term fix.
What the Assembly proposed was nothing resembling a budget deal. It was mainly a smoke and mirrors solution that would give the state some instant cash by delaying payments to schools and cities until later in the year.
As Schwarzenegger said, that doesn’t solve anything and merely kicks the can down the road – and not that far down the road.
But if the IOUs are the epic disaster Chiang and Lockyer are warning of, with the prospect of making it nearly impossible for the state to borrow money or sell its bonds, the governor and Senate Republicans have to consider grinding their teeth and easing their all or nothing position on the budget.
Schwarzenegger’s concern, and it’s a real one, is that the state’s looming deadlines for fiscal calamity are the only things that will force serious discussions between the Legislature’s Democrats and Republicans. The prospect of seeing IOUs go out to cities, counties and businesses in every Assembly and state Senate district in California can work remarkably well to focus the minds of politicians looking for re-election in 2010.
But if legislators can delay that day of reckoning, the current finger pointing, arguing and posturing could continue all summer.
The question, though, is how long can everyone wait when California’s financial future may hang in the balance? Chiang and Lockyer may be exaggerating the danger the IOUs pose to the state, but are Schwarzenegger and the legislators willing to take that chance?
John Wildermuth is a longtime writer on California politics.