California Faces $25 Billion Budget Deficit Requiring Deep Cuts to Higher Education and Services for the Poor, Disabled and Elderly (but No Cuts to Public Workers' Salaries, Benefits and Pensions)

California Treasurer Warns of IOUs, If No Cuts

January 22, 2011

Associated Press - State Treasurer Bill Lockyer said Saturday that California could be forced to issue IOUs as early as April or May if state lawmakers don't make deep spending cuts soon.

Lockyer, a Democrat, said that if lawmakers don't adopt a timely budget "that addresses the substantial shortfall in current accounts, we will run out of money to pay the bills either in this fiscal year or shortly into the new one."

The treasurer made the comments at a political conference hosted by the University of California, Berkeley Institute for Governmental Studies.

California faces a $25.4 billion deficit through the end of June 2012, including an $8.2 billion shortfall in the fiscal year that ends in July.

To close the gap, Gov. Jerry Brown, a fellow Democrat, has proposed $12.5 billion in spending cuts and borrowing, and wants to ask voters to extend a series of temporary taxes in a June special election. The state Legislature would need to act by the end of March to get such a measure on the ballot, and Brown has also asked lawmakers to have a budget deal in place by then.

"The governor has said he wants to get a budget back from the Legislature by March. Lockyer's comments today really underscore how important that is," said Brown spokeswoman Elizabeth Ashford.

The treasurer said that to win voter approval for extensions of temporary sales, income and vehicle taxes, Brown and other Democrats must show California voters what's at stake -- what would be cut if the proposed $11 billion in tax increases aren't approved.

Republican legislative leaders have vowed to fight efforts to extend the taxes and have so far been steadfastly against even putting such a measure before voters. Brown likely needs two-thirds support in both houses of the state Legislature to get his measures on the ballot, meaning two GOP votes in the Assembly and three in the Senate.

Lockyer said many Democrats are worried about appearing to threaten voters by presenting a "cuts only" budget, but said voters need to know what it would mean to the state.

"The hit on K-12 (schools) is at least close the schools six weeks a year. Voters need to hear that," he said.

Earlier this month, Brown proposed a $127.4 billion spending plan for the 2011-12 fiscal year. It includes deep cuts to higher education and services for the poor, disabled and elderly.

Part of Brown's sales pitch this time is that most of the tax revenue from the sales tax and vehicle license fee extensions, if approved at the polls, would go to cities and counties. California voters have shown greater willingness to pay for local services than to fund state government, which many see as inefficient.