LOS ANGELES -- California did not have a budget in place by midday Friday, the first day of fiscal 1995, but negotiations were continuing between Gov. Pete Wilson and legislative leaders in an effort to resolve their differences.
While a bipartisan agreement appeared unlikely Friday, lawmakers were planning to meet over the Fourth of July weekend, spokespersons for Assembly Speaker Willie L. Brown Jr. and Senate president pro tem Bill Lockyer said.
The legislators hope to pass a budget to avoid vastly complicating the state's fiscal 1995 cash management plan. The plan calls for $7 billion of short-term borrowing later this month.
This marks the seventh time in eight years the state has begun its fiscal year without a budget. But, unlike past years, the state's cash reserves to pay bills are so lean that state controller Gray Davis said he might be forced to authorize the issuance of IOUs, or registered warrants, by as early as today if a budget impasse develops.
A stalemate also would have extremely negative ramifications for the state's short-term cash management program, Bank of America managing director Anthony J. Taddey told top state lawmakers last Thursday.
As senior manager for the state's short-term borrowing program, Bank of America heads a syndicate of 16 financial institutions that is being asked to provide credit support for a portion of the state's short-term borrowing.
Taddey reportedly told lawmakers they should pass the budget by noon Friday to avoid the possibility of an unraveling of the bank consortium's support. Separately, in an unusually blunt letter, Taddey wrote four legislators that the specter of a prolonged budget delay "seriously endangers our ability to complete the financing on the best available terms for the state."
Moreover, he said, the use of IOUs is "viewed very negatively by the financial markets" and would "further jeopardize the state's ongoing access to credit markets at a reasonable cost."
As currently planned, the state has proposed to issue $4 billion of creditenhanced revenue anticipation warrants July 20, which would mature on April 26, 1996. On July 27, the state would issue $3 billion of revenue anticipation notes due next June.
A key sticking point in the budget negotiations is how legislation should be structured to automatically trigger certain fiscal actions if state revenues come up short during the next two years. The legislation is needed to allow state attorney general Dan Lungren to provide an unqualified opinion on the legality of the two shortterm borrowings. The banks need the legal opinion to provide credit support for the Raws.
Democrats and Republicans earlier had been unable to agree on an approach. Democrats reportedly wanted the state to extend an income tax surcharge on upper-income Californians beyond 1996, a move that Republicans viewed as a tax increase.
"It is [Wilson's] intent to resolve the trigger legislation ... and put those proposals up in both houses for a vote" by Friday afternoon, Harold D. Palmer, assistant director of the state department of finance, said Friday.
If the logjam over the trigger mechanisms is not cleared, the Raw borrowing timetable could unravel, according to a spokes woman for treasurer Kathleen Brown.
The bank consortium is being asked to decide by Friday whether they would execute warrant purchase agreements, which are similar to letters of credit. Such bank credit support on the Raws would cost the state about $30 million, in addition to $400 million in interest costs associated with the loan, the spokeswoman said.
State finance officials are tentatively scheduled to meet July 11 in New York with rating agency officials to discuss the short-term borrowing plan.
