Borrowing Before We Borrow So We Can Borrow
As reported on the County Voice earlier this month, the State Controller has so far been able to avoid issuing IOUs because of the massive deferrals of payments to counties and schools. However, Controller Chiang has said he might have to issue IOUs for state payments beginning in early October.
With news coming from the Governor’s office that the Big Five’s closed-door meetings have produced the “framework” of a budget deal (due in part to Republican leaders compromising on at least one tax issue, a two-year suspension of the net operating loss deduction) and that a budget vote might come within the next week or so, county officials would be forgiven for thinking that the specter of IOUs could be behind us. But it’s not quite so simple.
The best-case scenario on budget timing would include the Big Five ironing out the final few wrinkles, legislative counsel drafting all the necessary language, the Legislature returning to Sacramento, and then approving by two 2/3 votes the deal that their leaders have negotiated.
If those all happen quickly (and remember, that’s a “best-case” scenario), a budget could be approved and signed by late next week. In other words, early October. But whenever a budget is signed, the Controller’s office will still need about a month to line up the Revenue Anticipation Notes (RANs) needed to shore up the General Fund until the bulk of tax payments arrive in the spring.
Into the picture steps State Treasurer Bill Lockyer, who announced yesterday that he is pursuing a bridge loan of more than $5 billion to cover the period between budget enactment (whenever that may be) and the sale of RANs. Last year, the state sold $1.5 billion in bridge loans to pay off IOUs.
In the likely occurrence that at least some of the investors in the bridge loan will also purchase RANs, this will be like borrowing from Peter to pay Peter. Which works out well for Peter. But at least the state will also be able to pay all the Pauls, which in this analogy are counties, health clinics, small businesses, state contractors, and schools.
That is, if there ever is a budget.