TheBakersfieldCalifornian.com

A local lawmaker said Wednesday he’d fight in court or through legislation any issuing of IOUs instead of cash state tax refunds as officials have warned they might have to.

State Controller John Chiang has projected California will run out of money Feb. 27 and be at least $2 billion in the red without a budget resolution, according to a spokesman. So, Chiang has said, he may have to start issuing IOUs as early as Feb. 1.

The people who’d first receive IOUs include taxpayers expecting refunds, legislators and top appointed aides, California Student Aid Commission grant recipients, about 1,700 judges and court-appointed lawyers.

The state must first pay schools and bondholders with any cash on hand.

State Sen. Roy Ashburn, R-Bakersfield, said he may not buy that California coffers are about to run dry because the state takes in money year-round. And he said it would be “offensive” to refund taxpayers in IOUs.

He said he’d pursue legal avenues to compel the state to pay cash.

“The people of California, in good faith, overpaid their taxes in cold, hard cash,” Ashburn said. “The state’s obligated to return the money in cold, hard cash.”

Chiang spokesman Garin Casaleggio said the late-February projections, expected to be updated Thursday, are very real and Chiang has long been up front about the state’s cash flow problems.

“The controller doesn’t want to issue IOUs. He’s being forced to by the cash situation,” Casaleggio said. “And Mr. Ashburn has no one to blame other than both houses of the legislature and the governor” for the failure to find solutions.

Gov. Arnold Schwarzenegger and the legislature have been unable to agree on a plan to erase a budget shortfall projected to total $41.6 billion in 18 months — though Ashburn called the estimate a “guess.”

On Tuesday, Schwarzenegger vetoed an $18 billion budget package the legislature passed last month. He wanted more spending cuts and economic stimulus.

Ashburn said he has no idea whether the government can strike a budget deal in time to avoid IOUs.

“I don’t think anyone knows,” he said. “There are so many moving parts. Every day is filled with drama.”

State Sen. Dean Florez, D-Shafter, said how long the impasse lasts is really up to the governor as the legislature just gave him a solution.

He likened Schwarzenegger’s decision to a mortgage company wanting everything its way and “trying to foreclose on a house, rather than working with the folks who live in the house to come up with a solution.”

“There’s always a chance to resolve this situation by February 1st and that deadline is the one we are all eyeing at the moment,” Florez said. What about by April when tax filings are due?

The state will see new revenue from filings then, Florez said, “so it’s not clear at this time whether there will be enough liquid assets to avert using IOUs to issue refund checks.”

LOCAL IMPACTS

The people who would first receive IOUs include taxpayers expecting refunds, legislators and top appointed aides, California Student Aid Commission grant recipients, about 1,700 judges and court-appointed lawyers.

Here are some potential local impacts:

• In process year 2008, there were 287,357 returns filed from Kern County requesting a state income tax refund, according to the California Franchise Tax Board. That does not include business returns.

The amount of refunds requested — but not necessarily received — totaled just more than $124 million.

• Approximately 5,400 students at public colleges in Kern County could be affected by the state issuing IOUs in place of grants from the California Student Aid Commission, according to spokesperson Yvonne Stewart-Buchen.

The commission is awaiting clarification from the state controller's office about advancing spring grant funding before Feb. 1, she said.

• Last year, 1,500 students at Cal State Bakersfield received $4.7 million in commission grants; a similar number would be affected this year, said Kathy Miller, public affairs director.

In all, CSUB distributed about $48 million in grants and loans last year.

• Bakersfield College dispersed $898,000 in California Student Aid Commission grants to about 1,300 students last fall; the financial aid represents about 8 percent of all grants and loans awarded at BC. About the same number of students would be affected spring semester 2009, said Amber Chiang, BC’s director of marketing.

BC encourages all its students to apply for the Cal grants, and more than 85 percent receive some kind of financial aid, meaning IOUs will have a big impact, Chiang said.

State funding arrived four months late due to the overdue budget last July, but BC was able to cover all the Cal grants with its reserve fund until the state came through with funding.

After the last big budget crunch in 2003, BC built its reserve fund to help make it through this type of situation, Chiang said.

• Randall Dickow, administrator of the Kern County Bar Association’s Indigent Defense Program, a group of private attorneys appointed to represent indigent defendants, said the attorneys he oversees would not be affected as they’re paid through the county.

Same with lawyers with the Kern County District Attorney’s and Public Defender’s offices.

• When he heard that even a courtroom judge's paycheck could be delayed if the state budget impasse continues unabated, Kern County Superior Court Judge William Palmer was matter-of-fact while maintaining his sense of humor.

“We are employees of the state,” he said. “Obviously everyone wants this problem solved. But you can't spend money you don't have. “That's not a judicial pronouncement,” he added, smiling. “That goes back to Economics 101.”

• Terry McNally, chief administrator of Kern County Superior Court, said court employees are paid locally and would not be affected. But he’s bracing for cuts in the court’s annual funding increase. He’s expecting a $1 million to $2 million reduction this year.

“We may have to reduce our operating hours and reduce our phone answering,” he said. “It may mean closing counters earlier or increasing our backlog.”

McNally doesn’t anticipate layoffs in 2009 but employees who leave through normal attrition probably won’t be replaced.

— Staff writers Jeff Nachtigal, Steven Mayer and Christine Bedell.