Controller says state can pay bills through summer, warns of budget ‘gimmicks’

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California is expected to be able to continue paying all its bills through the summer, relying on deferred payments and billions in internal borrowing, state Controller John Chiang said in a letter Wednesday to top lawmakers and Gov. Arnold Schwarzenegger.

But Chiang warned that a particularly protracted budget stalemate or “the passage of a ‘get-out-of-town budget’ relying on accounting gimmicks and unrealistic solutions” could cause cash shortfalls to return this fall.

Last summer, the state government had to issue IOUs instead of paying its bills for only the second time since the Great Depression. Chiang said that “we are still trying to recover from that shameful chapter” and that the state remains saddled with “millions of dollars in extra debt service” because of it.

Lawmakers and Schwarzenegger have dug into their respective corners ahead of the new fiscal year, which begins July 1. Many foresee a long summer of budget negotiations.

“There is no debate that the worst thing you can do is nothing,” Chiang wrote. ‘Political paralysis cannot be an option.’ Read his full letter and see a chart of the state’s projected cash flow.

-- Shane Goldmacher in Sacramento