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State treasurer warns IOUs could loom in April, May [Updated]

January 22, 2011 |  3:09 pm

State Treasurer Bill Lockyer warned Saturday that California could face the unwelcome prospect of issuing IOUs in April or May if legislators and Gov. Jerry Brown do not act quickly to solve the state's fiscal problems.

The severity of California’s yawning budget gap, estimated at $25.4 billion, is widely known. But Lockyer’s comments, at a conference at UC Berkeley, were the first to suggest that the state government is staring at a more immediate cash crisis that could require IOUs.

The state last issued billions of dollars in the worthless scrip in 2009, causing a cascade of headlines around the world about the California’s fiscal dysfunction.

Lockyer, a Democrat, offered a clear prescription to avoid repeating that fiscal calamity: "Get a budget adopted that's honest, and make the cuts as soon as possible."

Brown, who took office less than three weeks ago, has called on the Legislature to enact by March 1 an austere spending plan that includes deep cutbacks to welfare, healthcare for the poor and the state's universities, among other programs.

"Get it done, the sooner the better," Lockyer said Saturday during his appearance at a conference sponsored by the Institute of Governmental Studies. If not, he said, "We will run out of money to pay the bills."

Brown and state Controller John Chiang, who is charged with paying the state's bills, have yet to outline so dire a scenario. "I am not supposed to say any of this," Lockyer admitted.

Steve Glazer, a top Brown advisor who was at Saturday’s conference, declined to comment on whether IOUs could be on the horizon. He referred questions to the Department of Finance, where officials were not immediately available. Chiang's office did not return a call for comment.

[Updated, 4:30 p.m.: Finance spokesman H.D. Palmer said California, if no actions are taken, will face a cash shortfall in July. But measures to conserve cash would have to be taken earlier -- "well before July," Palmer said –- to avoid the crunch. Examples include IOUs and deferring tax refunds for residents, he said. "None of these are pleasant options."]

Asked if the governor was concerned about IOUs, Glazer said, "There are a lot of consequences of not having a balanced budget plan for the long term and that is one of them."

Brown has coupled his request for immediate budget reductions with a call for a June special election in which voters would be asked to extend temporary tax hikes on their incomes, purchases and vehicles that have been in place since 2009.

Brown has steadfastly refused to detail what should happen if voters reject those taxes. Lockyer was not so shy, saying there would be no way to balance the books without shutting down the K-12 public school system at least six weeks of the school year.

Lockyer said Brown has been reluctant to outline such grim possibilities for fear of alienating a skeptical public.

"You can't seem to be threatening voters," Lockyer said.

Still, he said that presenting harsh realities was necessary, especially as most GOP legislators have dismissed Brown's call to place the tax question on the ballot. They say they want the budget balanced without new taxes.

Lockyer said that scenario would be "so awful I honestly don't know how any legislators can legitimately want to do that."

-- Shane Goldmacher in Berkeley

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