California Legislature heads toward passage of a budget

California Legislature heads toward passage of a budget

Sacramento Bee Oct. 8, 2010

On the 99th night of the fiscal year, California lawmakers were still debating late Thursday whether to pass a budget, already the latest spending plan in state history.

The $87.5 billion package relies on optimistic assumptions about revenue from taxpayers and the federal government, as well as reductions to state worker pay, prisons and schools.

Pending legislative approval, Gov. Arnold Schwarzenegger hoped to sign it as soon as today, 100 days late, enacting the final budget of his gubernatorial career.

State leaders faced a $19 billion deficit that was the result of faulty solutions in last year's budget, as well as a prolonged economic downturn and a permanent imbalance between how much California spends and how much it receives in revenue.

"This is a solid but sober deal for California," said Assembly Speaker John A. Pérez, D-Los Angeles. "But let's be clear: It's not a perfect budget. In an era of great recession, there's no such thing as a great budget."

Even in the final hours, legislators and lobbyists were jockeying over last-minute provisions that would help special interests. Travel websites like Expedia and Travelocity sought a law that would help them in battles against local governments over the collection of hotel taxes, but Democrats objected to the proposal.

Republicans and Democrats disagreed for months over how much spending to cut and whether to raise taxes. But their debate in the final days appeared to hinge on whether Democrats and labor unions would agree to cut pensions for future state workers, which Schwarzenegger demanded all year.

In the end, Democrats helped broker a deal between Schwarzenegger and the largest state worker union, Service Employees International Union Local 1000, to establish a lower tier of pension benefits for workers hired starting in mid-November.

Democrats said they helped SEIU negotiate a better deal for its 95,000 members, while Schwarzenegger said he won significant long-term reductions in the state's pension costs. The governor also pushed for a ballot measure that strengthens the state's "rainy-day fund," although voters won't decide on the proposal until 2012.

"It's a very unusual budget because it will have those very important reforms, that are structural reforms, that save the taxpayers' money down the line," Schwarzenegger said Thursday in Fresno. "And it doesn't crowd out other programs because of the pension problem that we have and because of not having a rainy day fund and so on."

While Republicans and Schwarzenegger counted the pension reductions as a win, Democrats said they successfully protected the safety net after the governor proposed eliminating welfare-to-work and child care for 142,000 children in California. The final budget had virtually no reductions to those programs – and relatively few in general for health and human services.

Some of the deepest cuts this year came to the state work force, which absorbed $1.5 billion in reductions, including $896 million in salary through a combination of higher pension contributions, personal furlough days and other measures.

Four legislative leaders and Schwarzenegger struck a handshake deal a week ago behind closed doors. Aides scrambled all through Wednesday night and Thursday morning to draft bills and analyses for floor votes. Some lawmakers complained Thursday that they had little time to read the actual bills.

Still lacking sufficient votes as the evening wore on, Senate President Pro Tem Darrell Steinberg, D-Sacramento, vowed to finish the job Thursday night.

"It is Day 99, I think," he said. "So we can be here a long time or we can be here a short time, but we're not going to leave until we get the budget done."

In the handshake deal, Republicans agreed to suspend a corporate tax deduction worth about $1.2 billion this fiscal year. But they rejected other ideas to tax oil production and raise the state's income and vehicle taxes in exchange for lower sales taxes.

"My caucus has been adamant all year long that lawmakers cannot balance the budget on the backs of taxpayers, job creators and those who are working hard in California," said Assembly Republican Leader Martin Garrick, R-Solana Beach. "This budget passes these tests."

As part of the agreement, Republicans won two permanent concessions to reduce tax penalties for corporations and ensure that cable and software companies receive protection from a new tax formula. Lawmakers also agreed to provide a onetime exemption that saves the Humboldt Redwood Co. more than $20 million in taxes and penalties.

Democrats agreed to cut schools by $3.1 billion, but they made $1.9 billion of that a deferral that they promised to give education next year. Education groups were not happy about the suspension of the state's Proposition 98 guarantee for school funding. But they received a stronger commitment that the state will repay schools about $9.5 billion more in future years, funds they're owed from past cuts.

The budget does little to solve the state's structural imbalance, and fiscal experts believe that the state is heading toward another massive deficit next year. The state faces two major headwinds – the evaporation of $8 billion once the state drops rates on three taxes, as well as the end of federal stimulus aid.

Meanwhile, California is counting on $5.3 billion in federal funds to balance this year's budget, yet the state only has a commitment for $1.3 billion.

Passage of the budget would bring some relief to tens of thousands of people and businesses who have gone unpaid since July 1, ranging from state contractors to child care providers.

Controller John Chiang must still analyze the state's cash figures and borrowing ability to determine exactly when his office will begin reimbursing those recipients for more than three months of pay, spokesman Jacob Roper said.

Chiang still has not ruled out IOUs, though legislators passed a bill Thursday that would allow the state to defer $5.5 billion in payments to schools and social services. Those deferrals would give the state enough time to borrow cash from Wall Street.

Thursday's session marked the first time the Legislature considered its budget in October. Budget debates normally occur during the 100-degree heat of late summer.

But this year's vote coincided with the baseball playoffs, one of fall's signature events. The Senate covered the bust of former Sen. David Broderick with a San Francisco Giants jersey and cap in honor of the team's first playoff game Thursday in seven years.

Broderick suffered a fate worse than sitting through an October budget vote; he died in an 1859 duel with former state Supreme Court Justice David Terry.