SACRAMENTO — State officials on Tuesday braced for the possibility of delaying tax refunds to millions of Californians, along with student grants and payments to vendors, as the latest round of budget negotiations between Gov. Arnold Schwarzenegger and Democratic legislators collapsed.
With little more than a month's worth of cash left in the state treasury, the governor and lawmakers have been unable to agree on how to erase a budget gap projected to reach $41.6 billion by the middle of next year. Democrats announced Tuesday that two weeks of discussions had ended in an impasse and sent Schwarzenegger the $18-billion fiscal package they passed last month. The governor vetoed it, as he had promised to do.
State Controller John Chiang has said that as early as Feb. 1, his office may begin issuing promissory notes if lawmakers have not resolved the budget crisis. The state has done this only once before since the Great Depression -- in 1992.
"We have not made any decision about deferring payments or using IOUs, but they are possibilities if the governor and Legislature don't come to some agreement soon," Chiang spokeswoman Hallye Jordan said Tuesday.
Under the state Constitution, schools and bondholders get first rights to any cash in the state's coffers.
Among the first to get IOUs instead of payments would be business and individual taxpayers who are expecting refunds, local governments and recipients of grants from the California Student Aid Commission. Last year, more than 10 million taxpayers received state refunds totaling $8 billion.
Court-appointed lawyers, 1,700 judges, legislators and their staffs would also go unpaid. And officials are preparing to delay a popular program that helps elderly and disabled Californians by paying their property taxes.
Last year, nearly 5,500 homeowners benefited from the 32-year-old Property Tax Postponement Program, which was created to help keep low-income elderly people from being forced to sell their homes or lose them to foreclosure.
California has already suspended financing for public works projects because its dismal financial situation has made investors balk at lending the state money.
In 1992, amid a budget crisis triggered by a deep recession, natural disasters and the Los Angeles riots, California ran short of cash and was forced to send out thousands of IOUs. They resembled checks but included a notice that they could not be paid by California "for want of funds."
