Rescue California

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Amid Dire Warnings, State Again Misses Budget Deadline
New rules and the size of the shortfall mean the consequences could be especially damaging this time. A last-minute GOP plan goes nowhere

July 01, 2003

Page 4

it is due next June, the interest rate on that borrowing will jump more than sixfold to a minimum of 7% a year.

Looming is the question of how the state will borrow $10.7 billion to cover the budget deficit in the fiscal year that just ended. Davis and Democratic legislators want to raise the state sales tax by a half-cent on the dollar. Republican leaders have refused to vote for any tax increase.

If approved as written, the temporary sales tax increase would be entirely devoted to paying off the deficit and would remain in effect until the deficit bonds are repaid in five years.

As those costs mount and troubles emerge, local officials are baffled and angered.

David Janssen, chief administrative officer for Los Angeles County, said state legislators show no interest in compromise to break the budget impasse. And yet, he said, "our political system requires compromise."

Janssen said it looks like the state's largest county government will be OK for several months. But if the impasse at the state Capitol lasts longer, "it gets pretty dicey."

In addition to closely watching the state's cash situation, Standard & Poor's Hitchcock said, credit analysts will look at California counties on a case-by-case basis, particularly large urban counties and poor rural ones with high health-care and social welfare costs.

"All are very dependent on state aid," he said. "Everybody is going to suffer a little bit."

-------------------------------------------------------------------------------- Times staff writers Peter Nicholas, Duke Helfand, Peter Hong and Nancy Vogel contributed to this report.

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