–No Calif. Budget as Governor’s Demand for Pension Reform Stalls Talks
–Governor, Lawmakers Told Hold budget Talks Today
–California to seek $5 Billion Loan From Wall Street

By Chris H. Sieroty

LOS ANGELES (MNI) – A budget was due three months ago but the
California Legislature hasn’t passed one for the governor to sign,
leaving the nation’s most populous state as the only one still without a
spending plan.

The legislative stalemate over how to close a budget deficit is
nothing new. This year’s deficit is more than $19 billion and once again
the state controller is considering issuing IOUs to pay the state’s
bills.

Controller John Chiang expects to begin issuing IOUs in the next
few weeks if lawmakers fail to reach an agreement. The latest attempt to
reach a budget deal in meeting attended by the so-called Big 5 — Gov.
Arnold Schwarzenegger and the Democratic and Republican legislative
leaders — failed as attempts to reach a deal on pension reform couldn’t
be worked out.

Shannon Murphy, a spokeswoman for Assembly Speaker John A. Perez,
D-Los Angeles, told Market News International that talks to try and
reach a budget deal were scheduled to resume later in the day. She
declined to comment on the tone or details of the negotiations.

On Sept. 24, Schwarzenegger and lawmakers announced they had agreed
on a framework to end the budget stalemate and aimed to complete the
detail of the agreement by Sept. 27. The governor, a Republican who is
nearing the end of his term, has said he won’t sign any spending plan
unless lawmakers agree to roll back pension benefits for state workers
to 1999 levels.

Schwarzenegger wants to limit state pension costs by pushing back
the retirement age and basing benefits on three years of highest wages
instead of one. The governor also wants to require workers to contribute
5 percent more of their pay to their retirement.

“I have said that given the enormity of the deficit and the stark
choices available to us in closing it, it’s vital that we take the time
to get it right in producing a budget plan that protects Californians
from devastating job losses and economically hurtful decisions,” Perez
said in a statement.

As negotiations continue in Sacramento, Jack Kyser, an economist
with the Southern California Association of Governments, says the lack
of a spending plan creates uncertainty among local governments,
residents and businesses. In terms of jobs, Kyser said a number of
projects that require state funding are not getting done.

“It means jobs at the end of the day,” he said. “These projects and
their economic benefits will be delayed until their is a budget. It also
has an effect on companies looking to relocate to California. They are
going to stop and think twice about any move.”

Kyser said local governments were also being hit by a lack of
resources coming from the state, and pointed to the city of Montebello
that is seeking $19 million from its redevelopment agency to fund city
services.

Meanwhile, California is arranging $5 billion in short-term loans
to cover a cash shortage, but won’t be able to draw on the money until a
new budget is approved.

At a conference of the Securities Industry and Financial Market
Association in New York, state Treasurer Bill Lockyer said the state
would borrow the money from a consortium of banks once a budget is
enacted. The state could then repay the loan with $10 billion in notes
it expects to sell in October or November, he said.

Joe DeAnda, a spokesman with the treasurer’s office, told MNI it
takes three or five weeks to put together a revenue anticipation note
sale, meaning the loan would cover the state’s cash needs until the
notes were sold.

“It depends on when a budget is signed,” DeAnda said. “This (loan)
would be something ready to go and would bridge the month it takes to
put the RAN deal together. The proceeds of that sale would payoff the
loan. The number is still up in the air.”

According to the Treasurer’s office California has sold and not
repaid $68.8 billion in general obligation bonds, while voters have
approved $41.6 billion in GOs that have yet to be sold and the state has
sold $5.9 billion in 2010. As of Wednesday, the state’s GO bond rating
was A- from Fitch, A1 at Moody’s and Standard & Poor’s had an A- rating.

On his Web site, Chiang has listed the bills the controller’s
office will and won’t pay until a budget is agreed upon by the governor
and lawmakers. For example, his office will continue to pay debt service
and other payment required by the State Constitution and expenses with
ongoing appropriations from the Legislature, including income tax
refunds and payments on claims for unclaimed property.

However, due to constitutional and legal restrictions without an
enacted budget the controller’s office cannot pay community colleges,
local governments and salaries and per diem of state elected officials
and their appointed staff.

“We need a complete overhaul in Sacramento,” Kyser urged, adding
that lawmakers work in a “bubble.”

** Market News International Los Angeles **

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