Clock's ticking for California budget talks
| San Francisco
California lawmakers pushed back the start of summer recess Friday as they battle to end an epic budget stalemate that鈥檚 exacerbating a financial crisis and adding to calls for political reform.
If a deal isn鈥檛 reached soon, California鈥檚 bond rating could sink to junk status, warned state treasurer Bill Lockyer Thursday.
Legislators and Gov. Arnold Schwarzenegger seemed close to inking a deal earlier this week to close a $26.3 billion budget shortfall, but talks broke down Wednesday over cuts to educational spending.
鈥淭he good news is that they are on the last mile of the marathon. But even though they are close to the finish line, both sides have plenty of incentive to maintain their positions,鈥� says Dan Schnur, executive director of the Jesse M. Unruh Institute of Politics at the University of Southern California.
The latest standoff revolves around school spending cuts. Democrats want to amend Proposition 98 鈥� a mandate setting aside 40 percent of its general fund to schools 鈥� to say that anytime the state can鈥檛 meet that funding level, it will pay schools supplemental funding (in this case $9.5 billion) in the coming years. The governor is reportedly on board with helping school recoup lost funding, but opposes any permanent change to the proposition as unconstitutional.
But with each passing day, the state racks up debt by issuing IOUs to cover its bills, says economist Stephen Levy. He notes that the lowered bond rating 鈥� currently just two notches above junk 鈥� is hurting the state's short- and long-term interests.
鈥淲e are looking like the state that can鈥檛 get its act together and that鈥檚 not good when you are trying to attract businesses,鈥� says Mr. Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto. 鈥淚t鈥檚 all part of a picture of widespread economic damage, and the damage to the reputation [of California].鈥�
Meanwhile, new jobs data showed that while the overall unemployment rate of 11.6 percent was unchanged from May to June, California still lost an estimated 66,500 jobs last month.
Despite the gloomy scenario, an analysis by investment firm Charles Schwab says that California is unlikely to default on its bonds.
鈥淯nlike a corporation, states are sovereign entities, and cannot simply shut down and disappear, leaving all obligations and commitments behind,鈥� said analyst Rob Williams in a report on the state鈥檚 economy.
Still, the prolonged impasse 鈥� and the realization that the budget will result in service cuts across the board 鈥� has increased frustration with California鈥檚 political process.
鈥淭he only way you are going to resolve this for good is to have some structural reform in how the state is managed,鈥� says Robert Cruickshank from Courage Campaign, a progressive group pushing for a constitutional convention in California. The group is holding a series of town halls this weekend on how to overhaul the state鈥檚 governmental system.
But while there is support now for constitutional and other state reforms because of the budget crisis, says USC鈥檚 Mr. Schnur, translating that into real change later is another matter entirely.
