UPDATE: Gov. Arnold Schwarzenegger pounded home his fiscal crisis solution -- ending government waste without tax increases -- at a midday stop in Fresno today as the state moved a second day past a deadline to complete a budget.
The governor, speaking at a Greater Fresno Chamber of Commerce meeting in downtown Fresno, cited Ronald Reagan in his demand that legislators stop spending more money than the state generates in taxes. Schwarzenegger also blamed "endless debate and finger-pointing" in Sacramento for the state's $26 billion budget deficit.
The governor also said the state is at the mercy of the federal government when it comes to getting more water for Central Valley farmers. It's not like an action movie, he said, where "I go in and kick some butt and turn on the water."
He said he made phone calls that helped bring Interior Secretary Ken Salazar to Fresno for a town hall meeting on water Sunday.
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SACRAMENTO -- California's worsening budget crisis is poised to hit a new low point today as the state prepares to issue IOUs for the first time since 1992.
Barring a last-minute deal, the promissory notes will be needed because the state is running out of cash. Gov. Arnold Schwarzenegger and lawmakers have repeatedly failed to close a deepening deficit made worse by the foundering economy.
The governor on Wednesday pegged the deficit at $26.3 billion -- $2 billion higher than previous estimates. The gap grew in part because the Senate missed a deadline to cut school budgets for the 2008-09 fiscal year that ended at midnight Tuesday.
Schwarzenegger's newest proposal includes a smaller budget reserve of about $1 billion. He also wants to suspend the state's education funding law, leaving schools with $49 billion in total Proposition 98 funding, nearly $2 billion less than last fiscal year.
As expected, the governor issued an executive order adding a third furlough day each month for state workers. The move means most state offices, including the DMV, will be closed the first three Fridays of each month.
"Each day we wait ... the deficit is getting bigger because right now we are spending money we don't have," the governor told reporters.
Democrats criticized the governor for opposing a stopgap solution that would have delayed the need for IOUs. The plan -- including trimming last year's education budget -- passed the Assembly but died on the Senate floor late Tuesday night when Republicans sided with the governor and voted no.
"If the governor had just sent the signal to Senate Republicans, the bills would have passed," Assembly Speaker Karen Bass, D-Los Angeles, said in a statement.
Schwarzenegger says he will accept nothing less than a solution to the entire deficit. He is expected to repeat that theme in a scheduled appearance this morning at the Greater Fresno Area Chamber of Commerce.
Taxpayers to get notes
The first batch of IOUs is scheduled to go to the printer this afternoon and will include 28,742 promissory notes for residents owed tax refunds. Lawmakers hoped to reach a last-minute deal to avoid the move. But some lawmakers remained pessimistic.
"I don't see a way out at the moment," said Assembly Member Juan Arambula, I-Fresno.
Assembly Member Mike Villines, R-Clovis, who supported the stopgap measure, said "it's going to take a few days to look at the new landscape."
The IOUs would be sent only to groups not protected by court rulings and laws. Those paid as normal include schools, universities, state workers and Medi-Cal providers.
Payments at risk include disbursements to state vendors, students who get Cal Grants, residents owed tax refunds and counties that get reimbursed for providing social services.
State finance officials are scheduled to meet today to determine how much interest the IOUs would pay -- the maximum is 5% -- as well as set maturity dates. It's possible banks could cash the so-called registered warrants.
Bank of America announced Wednesday it would cash the IOUs for its customers through July 10, bank spokeswoman Colleen Haggerty said. Schwarzenegger and state officials asked other banks to do the same, noting that California has never defaulted.
Valley OK for a while
In the Valley, the impasse would likely have to drag on for a while before most residents notice the IOUs. For instance, most residents owed tax refunds have received them.
The state would issue IOUs to counties for CalWORKs payments. But in Fresno and Tulare counties, officials have borrowed money to keep the program running as normal for at least two months, officials said. Centers that provide services to developmentally disabled residents also have lines of credit, said Robert Baldo, executive director of the Association of Regional Center Agencies.
At California State University, Fresno, the campus usually covers Cal Grant aid until the state makes a reimbursement in October -- so students won't see a difference, officials said.
State vendors -- especially small companies -- might have the most to lose, although they are used to payment delays from the state.
Fresno Produce Inc. is one of several Valley vendors keeping an eye on the situation. The fruit and vegetable processor and wholesaler sells to prisons.
"I could survive short-term," said company Vice President Laura Miller. But "I don't want to bankroll the state."