Tuesday, February 3, 2009

“People are going to start hurting today”

CNNMoney reports California delays $3.5B in payments

NEW YORK (CNNMoney.com) -- Running short of cash, California has started delaying $3.5 billion in payments to taxpayers, contractors, counties and social service agencies.

With the governor and state lawmakers locking horns on resolving California's budget crunch, the controller Monday halted checks covering these obligations so the state could continue funding its school system and making its debt payments.

ME: This is a huge deal and it doesn’t appear that they are close to any solution.

…Nearly $2 billion in personal state income tax refunds are being held up, according to state estimates. Last year, some two million Californians received refunds in February.

"People are going to be hurt starting today," said Garin Casaleggio, a spokesman for Controller John Chiang.

Also on hold are $515 million in payments to the state's vendors and $280 million to help people with developmental disabilities. Other public assistance agencies will be left waiting for hundreds of millions of dollars.

ME: This will hurt. State can’t pay vendors, vendors can’t pay employees or suppliers. Suppliers can’t pay employees, etc.

…To shore up California's budget, the governor wants to slash spending by $17.4 billion, according to the California Budget Project. Included are cutting $7.7 billion from public education, eliminating dental and other benefits for adults on Medicaid and requiring state workers to take two unpaid days off per month.

Schwarzenegger is also looking to boost revenue by $14.3 billion and borrow $10 billion more. He wants to raise the state sales tax by 1.5 points - to 8.75% - through the end of 2011 and hike alcoholic beverage taxes by a nickel a drink.

"The truth is that California is in a state of emergency," Schwarzenegger said in his State of the State address on Jan. 15. "The $42 billion deficit is a rock upon our chest and we cannot breathe until we get it off.”

ME: Higher taxes and lower services aren’t going to help our economy recover.