State Politics

For just the second time since the Great Depression, California began paying some of its bills with IOUs Thursday, as this year's version of the state's annual budget battle dragged on.

With California's budget gap growing by millions each day, Thursday marked a roller coaster of Capitol emotion that veered from optimism about prospects for a deal to eruption of a new fight over school funding.

When Gov. Arnold Schwarzenegger blasted lawmakers for debating an anti-cow tail-docking bill amid the budget meltdown, Wayne Pacelle, CEO of the Humane Society of the United States, took umbrage:

Remember the Arnold Schwarzenegger who, exactly five years ago, denounced state legislators as "girlie men" beholden to unions because they failed to pass a state budget? He's back, sensing that time is running out on his 2003 campaign promise to stop "crazy deficit spending."

State Controller John Chiang has some advice for Californians peeved about the IOUs he's about to issue: Don't blame me.

California's budget crisis is turning into a worldwide spectacle that could harm the state's business climate – and chase companies away.

Budget cuts have torn chunks off many state workers' paychecks, but other government employees so far have been financially unscathed.

Causing the state to issue IOUs could lead to a comprehensive budget deal. Or it might just further wreck California's reputation and credit rating.

A California financial company on Wednesday agreed to repay $2 million to New York state's giant public pension fund after one of the company's former partners was implicated in paying a kickback to secure investment deals from the fund.

"No excuses, but there are clear reasons why the budget isn't done yet. We are living through a historic economic crisis that has resulted in people and government having less money. Since I began as leader of the Senate, the combined budget deficit has amounted to almost $60 billion. This fiscal reality, combined with the extraordinary two-thirds requirement to pass a budget, is the reason the job is not done yet."

Day one of the 2009-10 fiscal year brought no agreement on a plan to close what is now estimated to be a $26.3 billion state budget deficit. Here are some of Wednesday's key developments:

California is on the brink of issuing IOUs and state workers will take a third unpaid furlough day in July after Gov. Arnold Schwarzenegger and state lawmakers appeared near failure to strike a budget compromise late Tuesday.

It was supposed to be a dry public hearing on a "notice of proposed regulations," a meeting to let citizens speak about technical aspects of how lethal injection is administered to condemned inmates.

As legislators battled over the state budget Tuesday, an independent commission voted to slash lawmakers' per-diem payments, car allowances and medical and other fringe benefits by 18 percent.

California public employee unions already reeling from pay cuts have been dealt a new blow by Gov. Arnold Schwarzenegger – a push to lower pension and retiree health care benefits for state workers hired after today.

With the state poised to issue billions in IOUs in lieu of cash this week, California's budget crisis could create serious headaches for some private vendors and local governments.

The quest to balance the state budget remained mired in sharp rhetoric and fruitless votes Monday, as the clock ticked nearer to California running out of cash and paying its bills with IOUs.

Democratic legislators trotted out a stick-and-carrot approach to closing the state's budget gap Sunday night, negotiating with the governor on one floor of the Capitol while voting for a package of cuts and taxes on another.

Democratic legislators trotted out a stick-and-carrot approach to closing the state's budget gap Sunday night, negotiating with the governor on one floor of the Capitol while voting for a package of cuts and taxes on another.

They think of themselves as street-theater activists who are willing to get in the face of the powers-that-be to bring equity to the state's school funding system.

Once seen as the model of public employee labor sophistication and clout, California's prison officers union is struggling amid the state's financial meltdown and a sour relationship with Gov. Arnold Schwarzenegger.

Perhaps the most enduring political debate in California – right up there with water – is whether the state's periodic plunges into economic recession are caused by circumstances beyond its control or a self- inflicted malady.

Gov. Arnold Schwarzenegger plans to furlough state workers an additional day each month starting in July if lawmakers do not send him an immediate solution for the entire $24 billion budget deficit, he said Friday.

The California Lottery Commission Friday approved plans to award a $53.7 million contract to Otto Construction to build a new six-story 155,500-square-foot home for the commission on Richards Boulevard in Sacramento. The lottery is financed by gamblers, not the state's deficit-ridden general fund, and officials said the current building is literally sinking.

There's at least the appearance of one bipartisan agreement in California's divided state Senate.

You know it's going to be a long campaign when backers of two GOP billionaires in the 2010 governor's race, Meg Whitman and Steve Poizner, begin sniping 11 months out.

Gov. Arnold Schwarzenegger and GOP state senators took an all-or-nothing stance in the state budget fight that could lead to issuing IOUs to pay California's bills.

A federal judge on Thursday blocked a $2 hourly wage cut for California in-home care workers that was slated to begin July 1, potentially increasing California's budget deficit by another $98 million.

On June 10, the Public Policy Institute of California issued a report that was highly critical of California's "enterprise zone" program that gives tax breaks and other economic incentives for employers to establish new facilities in areas of high unemployment.

In saying Thursday that fiscal times are not right to spend $1.9 billion on long-term health care beds for prisoners, Gov. Arnold Schwarzenegger's administration has put itself on track for a new head-on collision with the federal courts.

California, which has lost 800,000 jobs in this recession, will lose 200,000 more before it ends late this year, University of the Pacific forecasters said Wednesday in Stockton.

Whether the state budget mess ends with more cuts or more taxes, the economy won't know the difference – at least in the short run, economists say.

Rudy Giuliani, the former mayor of New York who ran for president, is suggesting that New York needs to hold a constitutional convention.

Tactics some state employee unions have deployed to counter talk about whacking the budget:

California's budget mess got even messier Wednesday, with the failure of legislators to reach a compromise on spending cuts, the state controller warning he will issue IOUs next week instead of checks, and no clear idea of what to do next.

The Legislature is poised to vote today on a nearly $24 billion budget-balancing plan that Republicans and Gov. Arnold Schwarzenegger do not support.

As the Legislature's Democratic leaders unveiled their new – and, they say, improved – version of the deficit- ridden state budget last week, Gov. Arnold Schwarzenegger sharply criticized its reliance on new taxes and "one-time solutions" that don't solve the fundamental imbalance.

A California assemblyman quit the Democratic Party and re-registered as an independent while the Legislature braced for today's showdown over a $24 billion budget hole.

The state Senate unanimously approved a bill designed to preserve auto dealerships in California.

In case you're counting – and Capitol Alert is – 37 of the 40 state senators have responded to Senate President Pro Tem Darrell Steinberg's request that they lower their own pay by 5 percent.

A California lawmaker arranged an improper deal with state corrections officials to stop an influx of parolees into his district 10 months before voters approved "Jessica's Law," the 2006 ballot measure he wrote to restrict where paroled sex offenders could live.

He was the swaggering prince of America's second largest city, a Latino political icon and a long-rumored gubernatorial candidate.

Caltrans Director Will Kempton, who is credited with helping the agency make a U-turn from ineptitude to respectability, is leaving at the end of July to take over the transit agency in Orange County.

This is usually the time of year when state legislators begin sparring in earnest over the adoption of a new state budget for the fiscal year that begins July 1.

A long-simmering investigation into alleged misuse of public funds at a major California workers' compensation insurer has reportedly escalated to search warrants, issued Friday, on property of several of its former executives.

Democrats are proposing to pay schools the same $7.9 billion that was the heart of Proposition 1B and to begin payments the same year, 2011-2012.

The politicians who are fashioning – or not fashioning – a new state budget often spout economic theories as the bases for their actions.

After Gov. Arnold Schwarzenegger called Dem budget plans "hallucinatory," Senate Prez Darrell Steinberg sent him some fake psychedelic mushrooms.