Wednesday, July 1, 2009

SACRAMENTO, Calif. - California officials faced a midnight deadline Tuesday to find a way to cut into a $24.3 billion state budget deficit and avoid the need to issue IOUs for the first time in nearly 20 years.

California was hardly the only state facing drastic cuts as their fiscal years come to a close at the end of June. Arizona and Connecticut are among states struggling to come up with budget plans to avoid cutting government services.

Democratic senators in California tried Tuesday, for the second time in two days, to pass three stopgap measures that would have preserved cash, primarily by cutting the education funding remaining in this year’s budget. The measures would have avoided the immediate need for IOUs but were put on hold because not enough Republicans support them to reach the required two-thirds majority necessary under state law.

Senate President Pro Tem Darrell Steinberg recessed his chamber so he and other leaders could “continue what I hope will be intensive and productive discussions with the parties to get something done here today.”

The early action Tuesday mirrored two unproductive Democratic attempts on Monday to resolve the budget problems. Both failed to draw support from Republicans.

Voting almost totally along party lines Monday, the state Senate approved a package of bills featuring spending cuts and increased fees and taxes to close the deficit.

Gov. Arnold Schwarzenegger, a Republican, quickly promised to veto the legislation, saying he would not sign anything that raised taxes or fees beyond what he has already proposed.

“They should forget about that,” he said, accusing Democrats of going through a “song and dance. Let’s get to work, fix it.”

The stopgap spending bills failed in the Senate when Republicans objected, saying the budget problems need a comprehensive solution focusing on spending cuts. All three bills had passed the Assembly last week with bipartisan support.

The stopgap bills, unlike the measures in the full Democratic budget plan, needed two-thirds majorities, and some Republican votes, to pass. Democrats said they would save more than $4 billion.

Mr. Steinberg, a Democrat from Sacramento, said his party would not accept the deep cuts in college aid, health care and welfare programs sought by Mr. Schwarzenegger in the governor’s own budget proposal. He warned his colleagues that they could be in session until midnight Tuesday to try to reach some kind of deficit-cutting agreement.

“Let’s get some common sense,” he said before the Senate adjourned late Monday night. “Let’s be statespersons and let’s leave by the end of the day tomorrow with the beginning of some success for California.”

State Controller John Chiang has warned that he will have to start issuing the IOUs to pay the state’s bills unless lawmakers take steps to stem the red ink by the end of the fiscal year on Tuesday.

The state’s deficit is roughly a quarter of the state’s general fund and has been widening this year as tax revenues have plunged. That has left the state with too little money to pay all its bills.

Roughly $3 billion worth of IOUs will be issued in July unless a compromise on closing the deficit is reached quickly. They will be sent to state contractors, college students, welfare recipients, low-income seniors, the disabled and others who depend on or deliver state services.

Mr. Chiang said he will start issuing the promissory warrants on Thursday.

In other states, Arizona legislators faced a midnight deadline to approve a new budget and prevent a state government shutdown. Amid a budget struggle in Connecticut, Gov. M. Jodi Rell, a Republican, issued an executive order to continue running the state government for a month, choosing which essential state services to fund.

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