California Dreaming

“The banking industry’s willingness to accept the warrants has acted as a shock absorber in keeping the pressure off the legislature to solve the budget problem,” concluded California Banking Association official Greg Wilhelm. With that, after swallowing a total of 876,000 California IOUS worth nearly $2 billion, the Bank of America and other leading California banks last week stopped honoring the so-called registered warrants, which the state has been paying out in lieu of real money.

Nevertheless, slow-motion negotiations back in Sacramento between Republican Governor Pete Wilson and the Democratic-controlled legislature, now oozing into a second month, showed growing signs of urgency. The two branches of state government were still hung up over the question of how to close an $11 billion gap for a new $60 billion budget. At the heart of the standoff was Wilson’s stubborn insistence on cutting education $2.3 billion. Wilson also threatened to veto a compromise bill introduced in his own Republican ranks. Assembly Speaker Willie Brown’s Democrats just as stubbornly drew the line and refused to cut school funding more than $605 million. Fumed the Assembly’s education chairwoman Delaine Eastin, a Democrat: “We’re not going to balance the budget on the backs of our children.”

Under the strict balanced-budget laws that apply to 49 states, including California, hard choices must be made. New Jersey, which experienced a comparable budgetary conflict between its Democratic Governor and its Republican legislature in reverse, last week announced a painful, unprecedented 8% reduction of its 68,000-strong state work force through attrition and a dispiriting 2,700 layoffs.