Kansas Suspends Income Tax Refunds; California One Vote Shy On Budget Impasse

The Witchita Eagle is reporting Kansas suspends income tax refunds, may miss payroll.

Income tax refunds and state employee paychecks could be late after Republican leaders and the Democratic governor clashed Monday over how to solve a cash-flow problem.

Payments to Medicaid providers and schools also could be delayed.

"We are out of cash, in essence," state budget director Duane Goossen said.

Republicans, who hold majorities in both chambers, blocked Gov. Kathleen Sebelius� proposal to borrow $225 million from healthy state funds to cover shortages in accounts used to meet the state�s payroll and issue tax refunds.

GOP leaders said they won�t approve the IOUs until Sebelius either cuts the current budget herself or signs the bill they passed last week slashing $326 million � including $32 million for education � to balance the budget.

Republican leaders said they had no choice, that by law the state can�t borrow any more money from itself.

Kansas� cash-flow problem stems in part from the worsening recession and lower-than-expected tax revenue.

As a result, the state had only $10 million in its checking account Monday morning.

Most immediately, that means the state does not have $24 million to cover payroll for the state's 42,000 employees and about $20 million for payments to Medicaid providers such as doctors, hospitals and nursing homes, Goossen said. Usually the state processes the payments on Wednesday and sends the checks out Friday.

"State employees simply have no more to give. Paychecks shouldn�t be held hostage for political maneuvering," said Lisa Ochs, president of the Kansas Organization of State Employees.

Kansas taxpayers also are due about $12 million in income tax returns. The state stopped payments on the refunds Friday.

I commend the Republican leadership in Kansas for their efforts. However, I condemn the entire Kansas legislature for failure to slash their own wages to help out.

One Vote Shy

Meanwhile, California Lawmakers Reconvene, Remain Apart on Solving Budget.

California�s Legislature reconvened today, after a marathon budget session ended last night with a $40 billion package of tax increases, spending cuts and borrowing falling one vote short amid a record deficit.

Bleary-eyed lawmakers were sent home at 9 p.m. Sacramento time after spending 28 hours in a session that ended with the proposal�s prospects in doubt. Republican Governor Arnold Schwarzenegger and legislative leaders worked through the day and night without success to secure an additional Republican vote in the Senate.

The draft bills include plans to raise the state sales-tax rate to 8.25 percent from 7.25 percent; boost vehicle license fees to 1.15 percent from 0.65 percent of the value of an automobile; add 12 cents to the per-gallon gasoline tax; reduce the dependant-care tax credit to $100 from $300 and impose a surcharge on income taxes of up to 5 percent.

Combined, the measures would raise taxes and fees by $14 billion, cut spending $16 billion and add $10 billion to the state�s debt. Another $2 billion in reserves would be created from funds moved on balance sheets.

[My Comment: Excuse me but what are billions of dollars doing off the balance sheet? Pray tell what else is off the balance sheet?]

�It�s counter-intuitive to think that you can solve this budget problem in this economy with tax increases,� said Senator Dave Cox, a Sacramento-area Republican who Democrats had counted on to vote for the package. Democrats control both legislative chambers.

Schwarzenegger Threatens To Send Out 20,000 pink slips

I expect that sometime soon one Republican will give in, thus Schwarzenegger's Threat To Send Out 20,000 Pink Slips will remain in the closet.

In an apparent effort to increase pressure on lawmakers negotiating an end to California's fiscal crisis, Gov. Arnold Schwarzenegger is preparing to send pink slips to 20,000 state workers.

The governor had delayed sending the layoff notices since Friday, hoping lawmakers would soon approve a package to close a nearly $41-billion budget gap. But despite intense negotiations since Saturday, Schwarzenegger and the Senate Democratic majority have been unable to secure a third Republican vote for a plan that includes more than $14 billion in new taxes.

Schwarzenegger's move is the second in which state workers have felt the impact of the crisis, following his decision forcing them to take two days a month off without pay. He has since reached a contract deal with a union representing 95,000 employees to cut the furlough days to once a month, although the workers have yet to ratify it.

With his layoff plan, Schwarzenegger hopes to eliminate 10,000 jobs, but is sending out more notices in case the state meets with obstacles, legal or otherwise, in laying off certain workers.

Key Words Missing

Lost in the spat over this budget impasse are two key words ... "And Counting" as in the following sentence: The California budget gap is $41 billion and counting.

Three months from now the budget gap will be $47-47 billion and counting assuming nothing passes now, or $6-7 billion if they do. Please feel free to come up with your own estimate. Thus, no matter what budget passes now, the California legislature will be back at it three or four months down the road unless the sugar daddies in Congress start passing out more candy to the states.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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