July 2, 2010 / 4:27 AM / 10 years ago

California begins fiscal year with no budget

SAN FRANCISCO (Reuters) - California Governor Arnold Schwarzenegger ordered state workers to be paid minimum wage as the fiscal year started on Thursday without a budget, but in a sign of the paralysis gripping the state — and facing a new governor in November — the state controller refused.

The next governor — whether it be Democrat Jerry Brown or Republican Meg Whitman — will almost certainly inherit a budget mess this November, given the ominous beginning to the fiscal year with no spending plan or hope of one soon.

State leaders have failed to approve a budget on time in 19 of the past 25 years and Republican Schwarzenegger said that without a fiscal plan, the state, with few exceptions, has to pay the minimum required by federal law, or $7.25 an hour.

Democrat Controller John Chiang, who is appealing the ruling, said he would pay full wages until the appeal process is done.

Checks don’t go out for weeks yet, but the two parties are wildly far apart on how to close a gaping shortfall estimated at more than $19 billion.

State Treasurer Bill Lockyer this week raised the specter of California being forced again to issue IOUs if it runs out of cash.

“It’s absolutely critical that the governor and legislature quickly adopt a budget that’s free of hope-and-a-prayer math and legal clouds. Every day without a credible plan brings us closer to deterioration of the State’s credit rating and the humiliation of IOUs,” Lockyer said in a statement.


Recession, the housing slump, battered financial markets and a state jobless rate topping 12 percent have cut hard into state revenue, and few see a credible budget in the works.

Orange County Supervisor John Moorlach expects one-time measures, such as accounting tricks that push payments to later years, in any budget plan and says that makes November’s election critical: “This will be one of those inflection points in California history.”

Brown, the state’s unpredictable attorney general, and Whitman — the corporate, former chief executive of eBay Inc — offer a stark choice of personalities. Their differences over the budget are less clear since Brown has not delivered a plan.

Brown is a former governor and an ally of California’s labor movement, which includes powerful public employee unions. But political analysts do not expect he would be a rubber stamp if elected governor.

“Part of it has to do with his personality,” said Bill Whalen, a research fellow at the Hoover Institution and a former aide to former Governor Pete Wilson. “He’s enigmatic.”

“Another part of it has to do with his political situation,” he added, noting that Brown is in his 70s and unlikely to seek office beyond the governor’s office so he may not be “beholden to special interests.”

Brown has said he would be an “independent servant of the state,” and take budget matters to voters because lawmakers have lost credibility on handling the state’s finances. Spokesman Sterling Clifford said Brown is a realist: “He’s acknowledged the difficulty of what’s coming for the next governor.”

Whitman is running for office for the first time, arguing her success in Silicon Valley will help bring a new perspective to state government, and she has outlined $15 billion in budget cuts, wants a spending cap, “real” welfare reform and to “solve California’s pension crisis,” her campaign says.

Whitman and Brown will have to work hard to convince voters they can make a difference on the state’s budget because “There’s a ‘show me’ element to what she’s saying, but that also holds true for Jerry Brown,” said Whalen.

“This election may come down to core credibility,” he said. “Skepticism just pervades the California political system ... A good portion of people are just down on the system.”

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