Friday, August 15, 2008


Latest gambit in state budget impasse

Matthew Yi, San Francisco Chronicle Sacramento Bureau

Friday, August 15, 2008 — The Legislature is likely to vote Sunday on a new version of the Democrats' budget that includes more spending cuts and fewer tax increases than their previous version, Assembly Speaker Karen Bass said Thursday.

But the budget is not expected to garner the required two-thirds majority vote in the Legislative houses because no Republicans have indicated they will vote a spending plan that hopes to help erase the state's $17.2 billion budget gap by raising taxes, GOP leaders in the Assembly and the Senate said.

California has been without a budget since the new fiscal year began July 1, and Gov. Arnold Schwarzenegger and Democratic-controlled Legislature so far have failed to reach a compromise spending plan.

Bass, a Democrat from Los Angeles County, said she and Senate President Pro Tem Don Perata, D-Oakland, intend to coordinate floor sessions of both houses so the budget vote can be held at the same time. Bass said she is 80 percent sure the vote will happen Sunday.

Perata was less sure about the Sunday vote.

"There's some confusion, and we haven't decided that yet, but the point of it is that we've been negotiating for months, and it's time to put up the product of those negotiations, and if they fail, Republicans can come up with their stuff," Perata said.

Republican leaders in both houses said they welcome a public debate on the floors of the Senate and the Assembly.

"Whatever they want to bring to the floor so that we can vote 'no' to taxes and move these negotiations forward so we can get done is fine with me," said Assembly Republican leader Mike Villines from Clovis (Fresno County). "But we will be voting 'no' on Sunday."

Senate Republican leader Dave Cogdill from Modesto said he believes such a debate and vote are healthy, even if the budget doesn't get approved.

"I hope that will engage us in the process and help Democrats and the governor realize that we're not going to support a tax increase," he said.

Aaron McLear, a spokesman for Schwarzenegger, said the governor "believes what the (Democrats) put on the floor should have bipartisan support. He'll continue to push for that compromise until we get a budget."

Neither Perata nor Bass gave much detail on what the new budget will look like, saying their staffs were working on final details of the plan. Republicans say they were told they would be given a copy of the new budget by late today or Saturday.

Bass said it will include changes in the form of a rainy-day fund as well as additional spending cuts and a tax package that is less than the $10 billion package previously proposed, which focused mostly on taxing wealthy residents and corporations.

She would not say whether Schwarzenegger's proposal for a temporary increase of 1 cent per dollar in the state sales tax will be part of the budget plan.

Republican lawmakers and Schwarzenegger have been demanding budget overhauls that also include a spending cap and giving the governor power to make midyear cuts, plans that Democrats have rejected.

The Assembly Budget Committee is scheduled today to hear the Republicans' budget bill, which includes a spending cap based on population growth and inflation rates. The bill is not expected to survive the committee, which is controlled by Democrats.

Still, both sides agree that significant budget changes would require voter approval in November, and Secretary of State Debra Bowen has indicated that Saturday will be the last day the Legislature can approve measures for the November ballot.

Bass said Bowen told her Wednesday that the deadline could be extended to Monday.

"It is critical that we take action before Monday, because the Democrats have taken budget reform very seriously," Bass said.

But the time pressure of trying to place a measure on the November ballot is not enough for Republicans to approve something they don't believe in, Villines said.

"What do we care about going to the ballot for? A phony rainy-day (fund)? It's nothing Republicans would vote on," he said.

State budget 101

Here are answers to some frequently asked questions about the state budget process:

Q: When is the budget supposed to be enacted?

A: The governor must submit a budget to lawmakers by Jan. 10, and the Legislature is required to approve the budget by midnight June 15 for the fiscal year that begins July 1.

Q: What happens if it isn't done by July 1?

A: Some payments cannot be made if the state does not have a budget. They include funding for some special education and remedial summer-school programs, and wages for state employees not covered under the federal Fair Labor Standards Act, such as lawmakers, legislative staffers, constitutional officers and political appointees.

Q: Why must the state have a budget?

A: The state Constitution requires it, and a budget is necessary to provide funding for key operations of state government, including education, health care, transportation and social services.


California Embroiled in a Battle Over the Budget

Francine Orr/Los Angeles Times, via Associated Press

Wendell Prude, left, a union leader, with state workers protesting at Gov. Arnold Schwarzenegger’s home in Los Angeles.


August 15, 2008  - LOS ANGELES — Each August in California, there are several givens: Succulent heirloom tomatoes will overflow in farmer’s markets. A fire will rage somewhere. And state lawmakers will fight over the budget, weeks after the deadline for its closing.

Most states have a fiscal year that begins on July 1. California is the only one of those that has yet to hammer out a budget, as legislators wrangle over how to close a budget gap of roughly $15 billion.

In response, Gov. Arnold Schwarzenegger signed an order on July 31 temporarily cutting the pay of roughly 176,000 state workers to the federal minimum wage of $6.55 an hour, and ordered nearly 10,000 state workers to be laid off.

As each day has passed without a budget, the governor, a Republican, has grown increasingly testy, denouncing lawmakers almost daily and insisting that he will veto any legislation — even that which he avidly supports — until a budget is approved. He has also said he will limit his own travel, perhaps bypassing the Republican National Convention in early September, during which he is expected to speak.

Sacramento has produced an on-time budget only four times in the last 20 years, and has been known to snake the process into September. Democrats, who control the Legislature and who seek a temporary increase in the sales tax to plug the budget gap, are at odds with Republicans, who want to cut services.

State Controller John Chiang, a Democrat, has said he would not abide by the pay-cut order because it could open the state to lawsuits and harm workers. As a practical matter, in fact, the state’s computers are too antiquated to deal with a payroll change. Mr. Chiang’s office has been sued by the Schwarzenegger administration, though to what effect remains to be seen.

“It is very hard for Schwarzenegger to get a preliminary injunction, because he has to demonstrate irreparable harm,” said Jonathan Zasloff, a law professor at the University of California, Los Angeles, and an expert on the state’s Constitution. “What’s the irreparable harm in paying salaries to workers that they will eventually get as soon as there is a budget?”

The governor has said he would reimburse workers for their full pay once the Legislature completes a budget.

California is among many states with budget troubles caused by the economic slowdown. In June, as most states ended their fiscal years, 20 states reported budget gaps, according to the National Conference of State Legislatures. California’s gap is worse than that of most other states, but not as large a percentage of the budget as a state like Arizona, which has also been hurt in the housing slump. A national economic slowdown and the foreclosure crisis, and resulting decreases in several forms of state taxes, have combined to make it so.

But California’s problems are both more severe, and, perhaps more intransigent, than those of other states. The state is among the worst-hit in the foreclosure crisis, and a record number of California homeowners were met with foreclosures last quarter. There were 121,341 mortgage defaults, up 125 percent from the second quarter of 2007, according to DataQuick Information Systems.

“Clearly, foreclosures have been a significant challenge,” said Arturo Pérez, a principal of the fiscal affairs program at the national legislatures conference.

California is also one of only three states to require a two-thirds majority in the Legislature to pass a budget, a particularly challenging requirement at a time of large deficits. Further, the state relies on income taxes rather than property taxes for most of its revenues, a difficult formula in tough times.

And the structure of the state’s budget — which is heavily based on borrowed money and peppered with numerous mandatory spending requirements approved by voters — makes it all the harder to balance.

The state has already cut its Medicaid reimbursement rate by 10 percent and deferred payments to vendors. Mr. Schwarzenegger has called for reductions of 10 percent across the board for most departments, and an increase in the sales tax may also be in the offing.

Outside of the layoffs, the pinch is being felt statewide. Vendors that have been cut off from the state are in a worse position this year than in previous years, because the tightening credit market makes it harder to get the short-term loans they need to get through the state’s budget impasse.

Nina Nolcox, who owns Graceful Senescence, which provides nursing care and therapy to the elderly in South Los Angeles, has already cut her payroll to deal with the 10 percent Medicaid cut and cash deferrals from the government in June.

This week she got her last check from Sacramento until the budget is signed. Roughly 70 percent of her business comes from clients paid for by state programs. Cuts to her staff’s hours, she said, are next.


California Assembly speaker plans a budget vote Sunday

By Kevin Yamamura and Jim Sanders - Sacramento Bee

Friday, August 15, 2008Assembly Speaker Karen Bass said Thursday she plans to force a budget vote Sunday, though lawmakers have no deal to end a stalemate that has lasted nearly seven weeks into the fiscal year.

Republicans and Democrats remain divided over whether to use new taxes, cuts or borrowing to resolve a $15.2 billion shortfall in a $101 billion general fund budget. If lawmakers convene Sunday, it would mark their first budget floor vote this summer, 48 days into the fiscal year.

Lawmakers want to register a vote by this weekend to meet a deadline set by Secretary of State Debra Bowen for placing measures on the November ballot. At least two components of budget negotiations require voter approval: a long-term change in budgetary policy and a plan to borrow against profits from an expanded California Lottery.

Many see the deadline as negotiable, however, and believe a Sunday vote may be the first of several floor exercises before a final deal is struck.

Bass, D-Los Angeles, said lawmakers plan to vote Sunday on a modified version of the Democratic conference committee plan, which relied on tax increases on the wealthy.

Senate President Pro Tem Don Perata said his chamber would hold a vote "probably Sunday," though he grew more tentative about those plans late Thursday.

Perata, D-Oakland, said Thursday that lawmakers remain divided over whether to use taxes or borrowing to balance the state's budget shortfall. But he said he is on the same page with Gov. Arnold Schwarzenegger on long-term budget changes that establish a stronger reserve fund but do not tie spending to population growth and inflation, as GOP legislators want.

"That's not an issue anymore," Perata said. "We've worked that out. I think it's to his satisfaction. It's to our satisfaction. I don't know how the Republicans feel about that. Most of them wanted a very hard cap."

Assemblyman Roger Niello, R-Fair Oaks, vice chairman of the Assembly Budget Committee, said the governor's budget plan would be unacceptable to his Republican colleagues, at least six of whom are necessary to pass a budget in the Assembly.

"That is not a reliable reserve," Niello said. "Our caucus believes the only way to have a reliable reserve, a real rainy-day fund, is to limit the growth of spending when revenue growth is strong."

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