State Reneges on Paying Interest to Vendors : Finances: An official’s promise of an added 8% on past-due rent incurred during budget impasse is overturned on legal grounds. The decision will apply to all government suppliers.

SACRAMENTO —  Going back on its word to companies that do business with the state, the Wilson Administration has decided not to pay late penalties to firms forced to wait for payments during the summer-long budget impasse.

The reason: in the eyes of the law, at least, the budget stalemate was nobody’s fault.

The Department of General Services told the government’s landlords during the 63-day stalemate that they would get no rent payments until a budget was enacted but assured them that state law entitled them to 8% interest on all past-due rent bills.

Department of Finance officials said at the time that a similar provision applied to all vendors that provided goods and services to the state.

But a month later, after the impasse ended, the Administration reversed its position and notified all state agencies that the government would not pay the interest, according to a Department of General Services memorandum.

The department’s lawyers, it turns out, decided that the state owed penalties only when there was a “failure to pay through fault.” Because the lack of a budget made it legally impossible to pay the bills on time, the tardiness was not the state’s fault, they said.

“The penalty is supposed to be a punishment on the part of an agency for not fulfilling their responsibility,” said Charles Adams, a spokesman for the General Services Department. “This was something that was entirely within the hands of the legislative process.”

Although the Legislature and the governor are supposed to enact a budget by the start of each fiscal year on July 1, this year’s spending plan was not in place until Sept. 2. During the standoff, the state paid $3.8 billion in claims with IOUs known as registered warrants, but another $3 billion in bills were not paid at all.

Among those not paid were the state’s landlords, mostly private property owners who are due more than $240 million a year for providing space at more than 2,500 locations around the state.

Timothy W. Hefler, chief of the state’s office of Real Estate and Design Services, told the landlords in an Aug. 10 memo that they would be paid past-due rents when a budget was enacted. Along with the rent, he wrote, state law required the government to pay a late penalty for any money due but not paid after July 31.

But a month later, Hefler’s boss overturned the policy. Director of General Services John Lockwood said the law Hefler cited did not apply in the case of a delayed budget, when most state agencies are prohibited from paying claims incurred after the start of the fiscal year.

“This section is intended to have application only where there has been a failure to pay through fault,” Lockwood wrote. “Quite obviously where there is legally no way by which payment may be made, that inability to pay was occasioned by operation of law and not through fault.”

Adams said Tuesday that the same conditions would apply to all state vendors, not just the landlords.

Gov. Pete Wilson’s office had no comment on the matter Tuesday.

Dick Aronoff, a partner in two San Fernando Valley businesses that lease space to the state Employment Development Department, said that the reversal cost his partnerships only a few hundred dollars but angered him because it was “just another instance of the state acting in bad faith and hurting people who are trying to be helpful.”

Aronoff said he probably will raise the state’s rent at the next opportunity both to compensate for this late payment and in anticipation of the same thing happening again.

“The next time I negotiate I’ll pull out these letters and say this is why I have to charge the state higher rent than I would charge a normal tenant,” Aronoff said.