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California’s money well runs dry

By Josh Richman
Friday, January 16th, 2009 at 12:13 pm in Arnold Schwarzenegger, Assembly, California State Senate, John Chiang.

Payments to state contractors? Aid to the aged, blind and disabled? Your state tax refund?

Not gonna happen on time — or at all, unless legislators and the governor do their jobs — State Controller John Chiang said today. Cash shortages expected in February are forcing him to delay critical payments next month.

“For months, I have warned State leaders that our cash flow will be in serious danger this Spring. Without corrective action from the Governor and Legislature, there is no way to make it through February unscathed,” he said.

Actually, the state’s General Fund cupboard has been bare for 17 months; California has been skating by, borrowing internally from special funds and from Wall Street. But now that money’s running out, too, and Chiang projects the state will be at least $346 million short in February.

The state constitution, federal law or court rulings put education, debt service and certain other payments first in line for what little is left, so Chiang intends to put a 30-day delay on everything else that’s supposed to be paid out of the General Fund. Besides the things I mentioned up top, that’ll include disbursements to State agencies that fund critical public services ranging from public safety to health and welfare.

“I take this action with great reluctance,” Chiang said. “I know it will put many California families who rightfully expect their State tax refunds in a desperate position. Individuals who already are vulnerable will be hit hard. Small businesses that don’t get paid may have to lay off more workers. Rather than helping stimulate the economy, withholding money from Californians will prolong our pain and delay our economic recovery.”

And this will get us through a few months, but won’t do anything to solve the problem, he added. “Only the Governor and the Legislature have the power to avoid this drastic and painful path. They have a narrow window of opportunity to quickly enact a sound solution to bridge the State’s cash and budget deficit, and I urge them to seize it.”

And if they don’t, he said, these payment delays might have to be extended.

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  • Arne Simonsen

    Now would be a good time for everyone to file a new form with their employer reducing the amount of State Income Tax withholding.

    Since the State Controller has deemed that the excess withholdings each of us has been paying will be withheld when you file your Form 540, then it only makes sense to reevaluate how much we each have withheld from our paychecks.

    Then let’s see how the State does with even less.

  • BGR

    Good call. Arnie, I made that call to tax guy yesterday. Why give the state the money you won’t get back with interest.