Second furlough begins as California budget talks stall

SACRAMENTO, Calif. -- Most state government workers are staying home for the second time this month while Gov. Arnold Schwarzenegger and top lawmakers work to close California's $26.3 billion budget deficit.

Without a balanced spending plan, the state was operating in a lopsided manner as the recession drags down tax collections. The projected deficit amounts to more than a quarter of the state's general fund, and to conserve cash, the state has begun issuing IOUs to contractors and government workers are being furloughed three days a month.

A state-sponsored children's health insurance program planned to stop enrolling new clients Friday, the first time that the Healthy Families program has done so since it started in 1997. And at least one more major bank was scheduled to stop accepting the state's IOUs.

California's budget impasse brought rebuke Thursday from state Treasurer Bill Lockyer, who warned that further delays on resolving the state deficit will threaten the state's ability to build schools, highways and levees.

Lockyer said the state's recent credit-rating downgrade could jeopardize its ability to secure financing for infrastructure projects, which would hurt businesses, local governments and ultimately, taxpayers.

"Give Californians and the world a pleasant surprise for once: Balance the budget now, and get back to the work of getting our state back to work," Lockyer said in a statement.

It was not clear if a meeting would be called Friday. The governor didn't meet with Democratic lawmakers on Thursday.

Schwarzenegger is in disagreement with state Senate President Pro Tem Darrell Steinberg, D-Sacramento, and state Assembly Speaker Karen Bass, D-Los Angeles, over how the state should repay $11 billions to schools once the economy recovers.

The Democrats said Schwarzenegger could guarantee future money for schools with a statutory change. But the governor's administration disagreed, saying such a change would require voter approval.

Education advocates prefer to get the repayment pledge in writing because they feel the governor hasn't always made good on his promises. Back in 2005, the administration agreed to repay $2.9 billion to public education after the state's largest teachers union accused Schwarzenegger in a lawsuit of taking school funding and refusing to pay it back.

"Our position is that there should be some legislative clarification on what's owed and when it will be repaid to schools," said Sandra Jackson, a spokeswoman for the California Teachers Association, considered one of the most influential forces in California politics.

Republican legislators said they wanted to concentrate on the current problem -- the funding shortfall for the fiscal year that began July 1 -- rather than future scenarios.

Most state agencies, including the Department of Motor Vehicles, will be closed Friday but state prisons, hospitals, police and firefighters were operating, along with and parks and jobless centers. Healthy Families, which offers reduced-cost medical coverage to low-income children, was scheduled to close to new enrollment.

Advocates fear as many as 570,000 children would be denied access to health coverage.

"Every possible opportunity must be taken advantage of and every avenue must be exhausted before taking the drastic and devastating step of denying health care to children," said Wendy Lazarus, founder of The Children's Partnership, in a statement.

Friday also marked the last day Citigroup Inc. planned to accept IOUs after extending the deadline by one week.

Bank of the West and some credit unions have said they will continue to accept IOUs but JPMorgan Chase & Co., Bank of America Corp., and Wells Fargo & Co. and other major banks have already stopped honoring California's warrants.