California Senate rejects cash-saving proposal
June 26, 2009
SACRAMENTO, Calif. and#8212; Californiaand#8217;s financial pic ture darkened Thursday after Senate Republicans blocked a legislative attempt to avoid having the state issue IOUs through a complicated cash saving maneuver.
The move would have temporarily cut and delayed billions in education funding, raising concerns among offi cials that it could further strain K-12 and university finances.
The Legislature scheduled a third day of meetings Friday, but Democratic and Republican lawmakers remained at odds over how to solve the stateand#8217;s $24.3 billion shortfall, less than a week before the beginning of the new fiscal year. Democrats have been reluctant to close the shortfall with cuts alone, while Republicans refuse to raise taxes. At the same time, a main bond-rating agency downgrad ed the stateand#8217;s credit worthiness, citing in part concerns about the stateand#8217;s ability to reach an agree ment before the state runs out of cash. The downgrade will make borrowing more expensive.
As hopes for a quick budg et resolution receded, legislative gridlock increased the chances that the state controller would have to issue IOUs to thousands of state contractors starting July 2. Those contractors provide an array of services, from in-home care for the frail to community health clinics.
The state Assembly on Thursday hoped to avoid the IOU threat by passing a package of bills intended to preserve cash until lawmakers can reach a budget deal. Later in the day, Senate Republicans blocked those bills from going to the governorand#8217;s desk.