A Different June 15 Budget Deadline

Normally, June 15 is the day that the Legislature routinely fails to send a budget to the governor by its constitutional deadline.

This year, the Legislature beat its June 15 deadline by the better part of four months, handing the governor a budget in February for the fiscal year beginning July 1. Gov. Arnold Schwarzenegger signed the austere spending plan into law on the 20^th of that month.

Their action was unprecedented in state history.

However, the February budget, which sought to close a $43 billion gap between revenues and spending commitments, is now an estimated $24 billion short.

In his revised budget issued in May, Schwarzenegger proposes a variety of unpalatable actions to cut state government down to that level, including eliminating the state’s welfare program and future grants to academic-achieving, low-income high school students to help them afford college.

A special 10-member, two-house conference committee is attempting to close the new budget hole.

However, late last month, Controller John Chiang made June 15 significant again.

In a May 29 letter to lawmakers and the GOP governor, Chiang “strongly” urged a budget be completed by June 15 in order to avoid a cash flow catastrophe on July 31 in which the state will be $1 billion short of making required payments to schools, local governments and vendors.

In a June 15 e-mail sent to reporters by Aaron McLear, Schwarzenegger’s press secretary, the administration uses Chiang’s “strongly” urged deadline as a goad to speedier legislative action.

“Today is the deadline set by the controller for the Legislature to have passed a budget solution for the state’s $24.3 billion deficit,” writes McLear. “According to the controller, every day past June 15 that our deficit is not closed increases the risk that we will run out of cash by the end of July.”

McLear notes that Schwarzenegger offered a plan to close the budget gap more than one month ago and, to date, lawmakers have taken actions reducing the budget hole by $7.7 billion, $5.3 billion of which are spending cuts.

“We appreciate the fact that the Legislature has been working on this issue but we urge them to take swift action to solve the full $24.3 billion deficit. We don’t have months to debate this problem; we have days to solve it,” McLear concludes.

(Editor’s Note: Nice to see a semi-colon in a press release.)

To smooth the state’s cash flow troughs and spikes – most money goes out in the first half of the fiscal year, most comes in during the second – Chiang wants to sell short-term notes.

That, however, can’t be done without a “credible budget and cash flow solutions in place,” Chiang said in his May 29 letter – a key reason for his “strongly” urging completion of a budget by June 15. There are also the logistics of securing investors for the notes to deal with, as well.

Attached to McLear’s e-mail is a chart of legislative progress on the budget, generated by the governor’s Department of Finance. It shows lawmakers eroding the $4.5 billion reserve in the February budget by more than $1.3 billion by refusing to eliminate welfare and college grants to needy, academically well-performing high schoolers.

Overall, assuming the Legislature embraces the governor’s estimate of the size of the problem, there are another $16.3 billion in spending decisions needed.

Of that total, Schwarzenegger proposes $4.8 billion be reduced in state spending on public schools.

-30-