Davis Reveals Plan to Avoid State IOUs

SACRAMENTO — Controller Gray Davis disclosed a plan Thursday to stave off the state’s looming cash shortage and prevent the issuance of IOUs, at least through the end of the current fiscal year on June 30.

But Davis said Gov. Pete Wilson is resisting a more ambitious effort that could get the state through the end of August without using IOUs--even if the Legislature does not enact a budget on time.

As a result, Davis said, the state risks running out of money shortly after the start of the next fiscal year July 1 and repeating last summer’s budget crisis, when $3.8 billion in registered warrants, or IOUs, were issued to employees, local governments and vendors who do business with the state.

“Unfortunately, the governor’s borrowing plan leaves no margin for error, no margin for a budget deadlock, and no margin for unforeseen developments,” Davis said.

A spokesman for Wilson said the governor believes it is too early to plan for a budget deadlock.

“We’re not there yet,” said Kevin Eckery, Wilson’s deputy press secretary. “There is no reason at this time to go through the time and expense and anxiety of borrowing money for the next fiscal year.”

The state has ended each of the last three fiscal years with a deficit in its general fund, which pays for most state programs from taxes collected on sales, personal income and corporate profits. But until last year, those general fund deficits were covered by borrowing from reserves in other funds set aside for specific purposes.

Last year was the first time since the Depression that the state ran out of cash completely and had to use IOUs to pay its bills.

This year, the controller said, the general fund will be $1.9 billion in the red by the end of May unless something is done to prevent the cash crunch.

Wilson, Davis said, has agreed through aides to a plan to borrow $2.5 billion from private investors on April 22. To ensure that the state will have enough cash to repay those notes, another $1 billion will be borrowed in June, and repaid July 24.

But Davis said Wilson would not go along with his proposal to postpone the repayment date until September, a move that would give the state enough breathing room to get through another lengthy budget stalemate.

Wilson last year took a similar stance, hoping the threat of IOUs would force the Legislature into timely action on the budget. But the pressure tactic failed and the budget was not enacted until Sept. 2, 64 days into the fiscal year.