California's IOUs Could Affect Many

AS California moves toward its second week of paying its bills with IOUs, political pundits say the exercise could prove costly for far more than just taxpayers.

Others risking the possibility of having to "pay later" and pay dearly include state legislators and Gov. Pete Wilson. Even the presidential candidates may find it affecting them.

When the strife-torn California Legislature missed the constitutionally-mandated Tuesday deadline for passing its $60 billion budget, Controller Gray Davis was forced to do something the Golden State hadn't done in nearly 60 years: pay bills with IOUs. By Friday the state had mailed out more than 25,000 registered warrants totaling $17.1 million.

The Legislature in recent years has routinely missed the July 1 budget deadline, but has been able to pay salaries, tax refunds and other expenses with cash on hand. But in 1992, faced with a daunting $11 billion deficit and no fallback money, warrants were the only option.

Despite a compromise agreement between the Senate and governor before the deadline, the Assembly, led by Democratic Speaker Willie Brown, allowed the deadline to lapse without a budget. By Friday the chasm between the Republican governor and Democratically-controlled Assembly had widened. Mr. Wilson no longer asked for the $1.1 billion in cuts to education agreed to earlier with the Senate, but rather $2.3 billion.

He also proposed a $2.2- billion reduction in health and welfare programs. Both programs are favorites of Mr. Brown and other liberal Assembly members. The speaker said the governor's plan was unacceptable.

Political observers, meanwhile, say if the budget crisis continues more than a couple of weeks, a growing list of casualties will be left. Taxpayers could be hurt if Moody's, Wall Street's leading bond raters, lowers the state's bond rating after its upcoming analysis of Sacramento's fiscal troubles. If that happens, the state, through the taxpayers, will pay more to borrow money, says University of California, Berkeley, economist Robert Smiley.

Perhaps the most telling impact of the state's fiscal crisis, however, will be on the politicians themselves.

The use of IOUs tends to reinforce an already negative perception voters have of lawmakers, says campaign organizer Richard Temple of McNally, Temple and Associates, a political consulting firm in Sacramento.

Experts say Democratic lawmakers, because there are more of them and they are often perceived of as big spenders, may be the most vulnerable to ballot-box backlash.

"The worst case scenario would be for them to make cuts in late July or in August and get weeks and weeks of bad press," says Robert Naylor, a former Republican assemblyman turned consultant.

"The good news for Governor Wilson is that he's not running this election," says UC's Smiley. Otherwise, he would be in serious trouble, too.

Experts said the ultimate winner from a prolonged crisis would likely be the candidate seen as standing outside the dysfunctional system - a person like Ross Perot.

"Because of California's enormous impact on presidential elections, both Messrs. Bush and Clinton have to be concerned about California's `antigovernment' backlash," says political consultant Mark Timmerman of Russo, March and Associates.