MORAIN: No budget? No worry in capital

September 14, 2010 

China Schwarzenegger California

(Eugene Hoshiko / The Associated Press) - Gov. Arnold Schwarzenegger greets the guests during his visit to Zhenhua Port Machinery Company (ZPMC) Monday, Sept. 13, 2010 in Shanghai. ZPMC is building the new east span of San Francisco’s Oakland Bay Bridge.

By now, you would think that California's budget follies might have elicited mild concern, perhaps a little alarm. This is, after all, Day 77 of the impasse. Nah.

Republican and Democratic legislators remain unable to bridge their differences. The governor, seeing no benefit to sticking around, traipsed off to another hemisphere.

A large labor union has launched an attack on Senate Democratic leader Darrell Steinberg, his reward for trying to resolve the mess.

In ways large and small, California's policymakers have adjusted to their dysfunction and taken steps to enable it.

Recession-driven budget cuts have had a major impact — state worker furloughs, teacher layoffs. But relatively few people feel the effects of the delay itself. Government operates. Public schools open. Needy people get their checks. Sure, the delay causes pain. But unless you run a business that relies on the state for payments, or go to a state-funded clinic for health care, you likely don't see or feel the effects of lawmakers' collective refusal to meet their constitutional deadline for having a spending plan in place.

Here's why: Regardless of whether lawmakers pass a budget, the state still takes its cut each time you buy a widget or collect a paycheck. Even in a recession, that adds up to billions each month. Because of lawsuits that the state has lost over the years, various statutes, and ever-more creative accounting tricks, the state manages to pay its most important bills, roughly $10 billion a month.

By law, it must meet its payroll. Federal law dictates that the state make monthly payments to disabled people. Nursing homes receive a special appropriation allowing them to be paid without a budget. The state cannot very well kick sick and dying people out of bed.

Controller John Chiang had warned that he might have to issue IOUs by now. But with tax payments ticking up, he says he won't have to hand out scrip in lieu of real money until next month. Chiang preserves cash simply by neglecting to pay bills on time.

Chiang has blocked steps that might have added pressure for an early deal, refusing the governor's demand that he pay state workers minimum wage.

Earlier this year, the Legislature, approved a bill permitting the state to delay payments to schools and local government, a step that frees cash so the state can make its bond payments of roughly $500 million a month.

Even that deferral has holes; 51 cash-strapped schools and districts have received exemptions allowing them to receive payments.

Wall Street views California as if it were a weird but wealthy uncle. Ratings agencies rate California's bond debt below all other states. The abysmal ratings mean that California must pay higher interest rates, which makes California bonds an especially good investment. Investors know there is no chance the state will default on its bond payments.

Of course, if the budget mess were to spread into next month or the month after, matters could turn more serious. Credit cards used by state fire crews in emergencies could be canceled for nonpayment, as could state-issued cell phones.

The state Department of Transportation warned that by the end of August, it would be unable to "move forward with over $3 billion in new projects that are ready for construction." August has come and gone. Caltrans now warns that road maintenance could cease if the budget delay drags on. We'll see.

"There is no rational reason to push this over to another governor — no rational reason," Speaker John A. Pérez said.

The rookie speaker has shown himself to be a cagey negotiator, but he has not proved he can close a major deal. Any deal could anger his benefactors, a problem in an election year when he needs millions to fund Assembly Democrats' campaigns.

Steinberg knows all about offending Democratic patrons. He helped structure last year's budget deal, which cut several programs favored by public employee unions. For that, the American Federation of State, County and Municipal Employees sent a mailer to voters urging that they call him to demand "no more cuts to vital programs we need." Such attacks take a toll.

Republicans, meanwhile, receive the benefits of state spending without having to sully themselves by voting for a budget.

The sunny northern San Diego County district of Assembly Republican leader Martin Garrick has beautiful state beaches, DMV offices and California State University, San Marcos. San Marcos State is a testament to the pork barrel politics of 20 and 25 years ago. The campus is the handiwork of the late Sen. Bill Craven, a Republican. Craven voted for state budgets on condition that Democrats fund San Marcos State.

The state will keep the campus open at an annual cost of $55 million. I asked Garrick whether he might be amenable to shutting San Marcos, given the budget crisis. "We're not giving up Cal State San Marcos," he said. "If you're going ask silly questions like that I'm not going to continue." And he walked away. No crisis here.

Contact Morain at dmorain@sacbee.com.

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