Don't Touch That Dial
You're not really surprised that things turned out this way today, are you?
Of course, that's not to say that some parts of today's budget news weren't unexpected. And few would venture a guess as to what happens next... though indications are the Legislature will be spending the final weekend of June in session.
For a formal look at today's events, dial in to The California Report tomorrow morning. In the meantime...
Cut More: It's not surprising that Republicans want more spending cuts, but how much more... and from where... will be one of the threads worth following in the next few days. In comments to reporters after the failed floor vote, Senate GOP Leader Dennis Hollingsworth said that his caucus wanted substantially more spending cuts... up from the Democrats' $11 billion to as much as $19 billion. Asked what those were, Hollingsworth referenced actions rejected by the budget conference committee and ideas floated a few weeks ago by the Legislative Analyst's Office. But what another major reduction in spending would look like... and who it would impact... is, for now, unclear.
You Dropped A (IOU) Bomb On Me, Baby: Controller John Chiang wins the award for stealing thunder today, with his announcement during the budget floor debate that he could be forced to issue IOUs as soon as next Thursday. While that news created some extra smoke inside the Capitol, it didn't generate much heat. Still, it was enough to merit mention by Senate President pro Tem Darrell Steinberg in his closing statement, and by Republicans in lamenting the state's creep towards fiscal meltdown. The state is scheduled to write checks totaling $14.26 billion in July; what's most interesting is how little of that can be stopped. The controller's office says only $3.36 billion of that amount can be delayed with IOUs. And sources say even that could be shrunk under scenarios being examined for delaying some of the mandatory July payments for public schools.
There's going to be an awful lot written about the IOUs in the days to come, but a couple of factoids for now: the state has only issued them twice -- in 1982 and 1992. The 1982 experience hardly even counts, as they were written and redeemed on the very same day. In 1992, the state issued just shy of $4 billion in IOUs (registered warrants, to be exact) in July and redeemed them in September. And finally: the only silver lining for those who can hang on to the IOUs for three months without getting paid (Chiang says the plan is to redeem them in October) is that they earn interest, unlike February's deferred payments. The official rate will be set next week, but the conventional wisdom is somewhere around 5%.
Solution Size: Given things are currently stuck in a squabble about how much of a solution is needed -- $24 billion, $19.5 billion, $23 billion, etc. -- the real question is what will Wall Street investors think? And for that, lawmakers have been saying they've put their trust in the estimates offered by Chiang and Treasurer Bill Lockyer. I've asked both fiscal officials in the last 24 hours about what size of a deficit solution is needed. Both believe the bigger the better, but after that... who knows. Lockyer politely sidestepped the politically sensitive question (during an interview for yesterday's story about California's impact on the national economy). Chiang made it clear that a sub-$24 billion deficit package wasn't abhorrent, but said it wasn't preferable. "Short of (a $24 billion solution)," he said, "there had better be cash in the state's treasury." Or consider this comment: "As these bills come due, there had better be cash to pay that."
By the way, one more tidbit from my interview with the controller: he said that Wall Street types are already casting some skeptical eyes on parts of the discussed deficit package. Like what? Chiang mentioned Governor Schwarzenegger's plan to sell off a portion of the State Compensation Insurance Fund for $1 billion, a plan Democrats have embraced.
What Next? That's the big question. Assembly Speaker Karen Bass told reporters this afternoon it's not out of the question that she'll put the same $11 billion cuts bill (dubbed "Budget Bill Junior" in the Capitol) up for a vote again... even though it didn't garner all of the Democratic votes in either house. Or perhaps something else, said Bass. And for those of you with weekend plans (umm, that's us in the press corps): cancel them.