SACRAMENTO, Calif. (KCBS) -- California's controller will start paying many of the state's bills with IOUs as soon as Thursday after lawmakers failed to close the state's worsening budget deficit, adding a new measure of indignity to a state sinking deeper into dysfunction.
Lawmakers' failure to act on Tuesday, the end of the fiscal year, also widened California's deficit from what already had been a whopping $24.3 billion _ more than a quarter of its general fund. The shortfall grew by $2 billion overnight, in large part because of the state's highly complex funding formula that boosts school funding each year.
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Gov. Arnold Schwarzenegger has declared a fiscal emergency to address California's deficit and has ordered state offices closed three days a month to save cash.
The Legislature will have 45 days to send him a plan to balance the state's budget, which ended the fiscal year with a $24.3 billion deficit. The shortfall is expected to grow by $7 billion because the Legislature did not enact several stopgap measures Tuesday.
If lawmakers fail to act within the 45 days, they cannot adjourn or act on other bills until they solve the crisis.
KCBS Team Coverage: Doug Sovern & Margie Shafer
The government shutdown will lead to a third furlough day each month for 235,000 state employees, bringing their total pay cut to about 14 percent.
Much of Tuesday night was spent trying to pass $3 billion in cuts to education and other programs to avoid sending out those IOUs, but when they adjourned at midnight, the state Senate came up short.
It really wouldn't have mattered anyway because the governor already said he wouldn't sign any partial fixes, only a complete budget.
"The governor believes we need to make much more serious cuts, and live within our means," said the governor's spokesman Aaron McClear. "The legislature has said that they would rather raise taxes to pay for programs, but we don't think that's right. We think we've already raised taxes enough in this budget."
Now because of complicated rules regarding Prop 98 education funds, the deficit may actually have grown another $7 billion.
"The governor wanted it his way. He wanted the cuts he wanted. He wanted the reforms he wanted, and he wanted it right away," said Senate President Pro Tem Darrel Steinberg. "So whatever point he thinks he may have made, there is one undeniable fact - California is worse off now than it was yesterday."
It's possible now the governor could force over 200,000 state workers to take a third furlough day off each month.
By this time tomorrow the state will begin issuing IOUs if the governor and legislature haven't reached an agreement on the budget.
The state controller says taxpayers will pay dearly if the cash crisis isn't solved.
"My office is prepared to issue the IOUs on July 2nd if the governor and legislature do not come to an immediate agreement," said State Controller John Chiang.
Democrats have a plan to close a $19.5 billion budget shortfall and create a $4 billion rainy day fund, but the governor and legislative republicans oppose any new taxes. If IOUs are issued Chiang says the most vulnerable will be hurt.
"This includes those receiving income-tax refunds, county governments for many of these social assistance programs, student receiving Cal Grants, they all will be issued IOUs," said Chiang.
The IOUs won't be redeemable until October 1st.
It would be the third time in California history IOUs are issued. The first was 1982, and the latest was in 1992.
(MGO/kmm)
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