Business Owners Bracing for Late State Payments
Tuesday, January 20, 2009
California's state controller is preparing to delay nearly $4 billion in state payments next month…and that has many business owners and social service program recipients bracing for the worst. Marianne Russ reports.
It feels a bit like dejavu for George Usi. He's President and CEO of the Sacramento Technology Group - a small IT company. About half of his business is with the state. Last summer during the record budget impasse, when the state wasn't making its payments, he had to tap a line of credit to keep things running. And now, because of the state's cash crunch and $42 billion deficit, he may not get paid by California once again.
Usi: "So obviously, I have no other choice, but to either reduce staff or find other states or other areas to do business, or to close my business all together. That's something I don't want to do, but if I have to, I'll do that."
Usi says as a business owner, he pays himself last - and the delayed payments could hit home, too:
Usi: "Just like everybody else, I have payments I have to make. I have a wife who's stage four breast cancer, and if I can't afford the payments to the health care provider, which I have to pay, her health care stops."
State Controller John Chiang is preparing to delay payments to people like Usi - as well as some student aid checks, income tax refunds and social service programs. He says the state is running out of cash, and unless lawmakers and the Governor each a deal by February first, he'll have to take that step.
Chiang: "But it's our offices that people walk into when they need help."
Pat Leary is the Assistant County Administrator in Yolo County. She says counties run social programs for California and depend on state dollars to keep them running - especially at a time when demand is up.
Leary: "if the Controller stops those payments, It will cost Yolo county well over 5 million dollars a month to continue payments on the state's behalf. Our entire reserve fund, every penny of our reserve is eight million dollars. So you can see we have about a month and half's worth of cash before we are completely broke."
Controller Chiang says the decision to delay payments is painful. But he says it will protect the very people who may not see a check next month. That's because it frees up enough money to prevent the state from defaulting on debt payments:
Chiang: "We are protecting the sick and the infirm for the long-term. If we default, it would be the equivalent of a nuclear meltdown for the financing in the state of California."
California relies heavily on borrowing every year to keep checks coming. Legislative and leaders and the Governor met last week - but still have reached no budget deal.
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