Schwarzenegger Drops Loan Amid Budget Impasse

Friday, 17 Sep 2010 09:02 AM

 

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California Gov. Arnold Schwarzenegger backed off a proposal to borrow $2 billion from the California Public Employees’ Retirement System to help balance a state budget now almost three months overdue.

The Republican governor of the most populous state in the U.S. planned to meet with Democratic and Republican leaders of the Assembly and Senate this morning, the 79th day of a deadlock over a $19.1 billion deficit. They met yesterday for three hours, the longest since the fiscal year began without a budget on July 1.

“Any idea to borrow money from the Calpers pension fund is off the table,” Schwarzenegger said in a statement late yesterday. “The Legislature must pass a budget that lets us live within our means, and includes the necessary reforms to fix our broken budget process and rein in out-of-control pension costs.”

The governor’s announcement came as Democrats who control the Legislature said an agreement may be closer, while the administration expressed doubt.

“Significant progress” was made in yesterday’s meeting, Senate President Darrell Steinberg told reporters as he left the governor’s office. Aaron McLear, Schwarzenegger’s press secretary, said the two sides “aren’t significantly closer. We made some progress but still have significant issues that remain.”

California today broke its record for the longest period that the state Legislature has gone without approving a new state spending plan. The previous record, 78 days, was set two years ago.

Largest Fund

Calpers, the largest public pension fund in the U.S., with $210 billion of assets under management, said this week it had been holding informal discussions with Schwarzenegger’s department of finance on crediting the state with $2 billion this year, an idea floated by the administration to help balance the budget.

The $2 billion would be an advance on the roughly $74 billion the governor estimates the state would save during the next 30 years from his proposals to roll back pension benefits for government workers.

The Republican governor has vowed not to sign any final budget unless it’s accompanied by legislation to permanently cut the state’s cost to finance workers’ retirement benefits.

Controller John Chiang, a Democrat, has said he may need to issue IOUs to pay bills for the second straight year if the standoff goes deep into next month. Standard & Poor’s has said it may cut California’s A- credit grade, the lowest among states, if the crisis worsens.


© Copyright 2014 Bloomberg News. All rights reserved.

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