Summer doesn't officially end until September 22. But the state's Summer of Debt -- at least from a cash perspective -- will end on September 4, according to Controller John Chiang.
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It was a busy second day of the new fiscal year at the printing facility tucked inside a quiet business park in a shaded east Sacramento neighborhood. But unlike most days, they weren't printing thousands of checks paid by the state of California.

This time, they were printing documents that aren't worth anything. For now, at least.
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It was an unusual ending to a long day, the final day of the 2008-2009 fiscal year. But there was no surprise ending: the conventional wisdom won out, as the state slipped into the new budget year with no solutions in place to a deficit that could be as large as $24 billion.
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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...
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Welcome to the final month of the 2008-2009 fiscal year for state government, and buckle your seatbelts for what promises to be one of the most unusual -- and difficult -- summers in state Capitol history.
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Late word this evening that will get everyone's attention: Governor Arnold Schwarzenegger has informed legislative leaders that if three of the six budget-related ballot measures fail next Tuesday, the state faces a $21.3 billion deficit between now and next July.

In a letter to the four legislators this afternoon, Schwarzenegger actually offered two new assessments from his budget team of what lies in store for California: a $15.4 billion shortfall if Propositions 1C, 1D, and 1E pass, and the aforementioned $21.3 billion if they fail.
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If there's any issue facing state government that's not quite reared its ugly head... but will... it's the price tag for retirement benefits of state employees. And today, a new estimate of those costs may only reinforce the notion that the issue is a ticking fiscal time bomb.

Controller John Chiang has released a new report, conducted by outside researchers, that pegs California will have to shell out some $48.2 billion to cover its current state worker retiree obligations on medical and dental care.
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"You cannot escape the responsibility of tomorrow by evading it today."

That's a pretty good message for occupants of California's statehouse, words attributed to a guy who's getting a lot of attention this week: 16, in current presidential parlance. Abraham Lincoln.

One more, you say? How about this one from the current top guy, 44, spoken a couple of weeks before he took office last month.

"Our problem is not just a deficit of dollars," said President Barack Obama. "It's a deficit of accountability and a deficit of trust."

Both quotes seem worth pondering as just about every observer of California politics and public policy waits for some kind of compromise agreement on the state's massive $40 billion budget shortfall.
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The storm clouds blew in to Sacramento this morning, and the timing couldn't have been more appropriate: the budget deficit chickens are coming home to roost, as tens of thousands of state workers are preparing for their first day off without pay.

The inaugural "Furlough Friday" of 2009 is set for tomorrow at government offices around California. And here in the true company town of state government, there will no doubt be an economic impact; just take the 9% cut in pay for each employee and multiply it by the region's state worker population of more than 75,000. Most of those folks live in Sacramento County, making the state the number one boss around here.

A spokesman for Governor Schwarzengger says some 90% of the state workers covered by the furlough decision will be staying home manana. Only a relative few divisions -- public safety, for example-- will get to either take furloughs on other days in the month, or defer the days off for as much as two years (though still lose part of the paycheck now).

The latest kerfuffle on the issue came this morning, with official word from Sacramento Superior Court Judge Patrick Marlette that he has "no views" on whether state employees who work for constitutional officers must also be furloughed.
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With the historic budget impasse's conclusion, it may be conventional wisdom to think the state's fiscal woes are -- at least temporarily -- over. But this morning, the state's top investment officer warned that California is in danger of running out of money due to the uncertainty of what happens next on Wall Street.

Treasurer Bill Lockyer's released his annual debt affordability report for state government today, but it was the particularly dire attached written statement that will make headlines:

"“For 10 days, state and local governments have been closed out of credit markets – long-term and short-term – in spite of the fact that they represent no default risk and provide a good tax-free return to investors," wrote Lockyer. "The credit market is frozen because financial institutions are afraid to commit capital amid enormous uncertainty."

That's particularly bad news for California, as state government typically needs a short-term loan around this time of year to keep the bills paid.

You may remember that the issue of loans was much discussed by both Lockyer and Controller John Chiang during the budget stalemate; at that time, the fear was an expensive loan known as a Revenue Anticipation Warrant (RAW), which was the only option for the state's money needs in the absence of an enacted spending plan. Now, even the frequently used loan known as a Revenue Anticipation Note (RAN) appears in trouble.

Without a RAN loan, the state's cash reserves could be depleted by the end of this month. That means all of those state services that went without during the budget impasse... and more... could end up without cash.

"Payments for teachers' salaries, nursing homes, law enforcement and every other state-funded service would stop or be significantly delayed," says the written statement from Lockyer. "And California’s 5,000 cities, counties, school districts and special districts would face the same fate."