Los Angeles - California Controller Gray Davis yesterday said he would not authorize $5 billion of revenue anticipation warrants - as proposed this week by Gov. Pete Wilson - because the state may not have the money to pay them back at maturity.
Davis' announcement came after a $2.6 billion cash-flow miscalculation was discovered in Wilson's revised budget plan, which was released Monday.
California faces a serious cash shortage in July, and may not have enough money to pay its bills if the state's political leadership cannot figure out an acceptable borrowing by the time the new fiscal year begins July 1.
In a press release, Davis said Wilson's revised budget and cash borrowing plan "is flawed and must be altered to be financially workable."
Under state law, the controller's office is responsible for the issuance of revenue anticipation warrants, which can cross fiscal years to maturity. The treasurer's office issues revenue anticipation notes that mature in the same fiscal year in which they are issued.
An Analyst with the state department of finance, an agency closely linked to the governor's office, miscalculated Med-Cal expenditures in the administration's cash-flow projections for fiscal 1996. Medi-Cal is a state program providing health care to the poor.
Instead of the state having $3.2 billion in cash on hand on June 30, 1996, the error means there would only be $449 million.
Wilson on Monday outlined his two-year budget recovery plan, which would help balance the roughly $40 billion general fund budget in fiscal 1995 by having the state sell $5 billion of revenue anticipation warrants that mature in April 1996. But, Davis said, the finance department's accounting error "means the state may not have the money in April 1996 to pay back [the] $5 billion loan proposed by the administration."
The state attorney general's office this week said it could give an unqualified opinion as to the legality of the RAW borrowing. However, that opinion would depend on the state "reasonably" anticipating having financial resources to pay off the RAWs before they were issued.
"The governor's plan does not fly," Davis said. "It contains at least a $2.4 billion hole that must be filled in order for it to be financially viable."
Under Wilson's original cash-flow projections, the state would still be able to repay the revenue anticipation warrants even if the state did not receive any of the $2.8 billion in federal reimbursements Wilson is counting on in the 1996 fiscal year. But, with the $2.6 billion Medi-Cal error, the state would not be able to pay back the $5 billion of warrants if the state does not receive most of the federal money, Davis said.
"Most informed observers do not expect the state to receive all of the reimbursement money requested form the federal governments," Davis said.
