The state's nonpartisan Legislative Analyst's Office confirmed Wednesday that California could run short of cash as soon as Feb. 1 unless lawmakers and Gov. Arnold Schwarzenegger immediately cut spending and raise revenues.
The LAO's Michael Cohen and Jason Dickerson said the following:
• California faces the "double whammy" of a severe drop in revenues coupled with an inability to borrow because credit markets are frozen.
• The longer lawmakers and Schwarzenegger go without adjusting the budget, the more difficult it becomes to determine whom to pay.
Schools and creditors have first claim on the state's revenues, while state worker salaries and benefits, Medi-Cal claims and court-ordered payments are among those with secondary priority. State Controller John Chiang has said the first groups to receive IOUs or delayed payments will include Californians awaiting state income tax refunds and companies that do business with the state.
• A prolonged budget dispute could force parties to file legal challenges to claim their share of state money.
• The LAO recommended that lawmakers allow internal borrowing from several state funds to add $2 billion to the state's cash cushion. It also recommended that lawmakers defer some payments to local governments and schools to preserve cash.
• A delayed budget agreement would mean the state would have to pay interest on IOUs or other borrowing. Such costs add to the deficit and have not been factored into the governor's budget.
Meanwhile, the California Transportation Commision delayed allocation of $293.5 million in funding for transportation projects because of cash problems.
Call Kevin Yamamura, Bee Capitol Bureau, (916) 326-5548.
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