Thursday, September 18, 2008


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By JIM CARLTON – The Wall Street Journal

SEPTEMBER 18, 2008, 6:50 P.M. ET -- The California Legislature was racing to amend its $104.3 billion state budget to head off a threatened veto by Gov. Arnold Schwarzenegger, with a new deal possible later today.

According to two people familiar with the plan, the legislature's reworked budget would make it harder for lawmakers to dip into a "rainy day" fund that can be used to help close future shortfalls. The governor had threatened to veto a budget the legislature passed on Tuesday, in part, because he felt the fund was not tamper proof. Failure to pass the budget that is now nearly three months overdue has led to a fiscal crisis in the nation's most populous state, with mass layoffs, hiring freezes and reduced pay hammering the state government.

The legislature was also working to address another concern of the governor's: that about $1.6 billion in new revenues aimed at helping to close an estimated $15.2 billion shortfall this fiscal year would come from accelerating withholdings on tax filers in the Golden State. The Republican governor told lawmakers he considered that funding tactic -- opposed by every Republican in the Democrat-controlled legislature -- a tax increase and would move to block it.

Legislators, who said the governor's office actually gave them the withholding idea, were instead looking at increasing corporate tax penalties to raise the money, said a person familiar with the matter. But representatives of the governor said he never supported that idea.

According to another person close to the negotiations, Gov. Schwarzenegger gave legislative leaders until today to fix the budget, or he would veto the one they already approved. A spokesman for the governor, Aaron McLear, disputed suggestions by some in the Sacramento statehouse that Gov. Schwarzenegger had delayed his veto to give lawmakers time to amend the plan to his satisfaction. Mr. McLear said the governor was simply awaiting all pieces of the budget, which he still had not yet received as of today.

Whether the governor gets his way in the end, political observers say this likely won't go down as a significant accomplishment on his part. "It's really hard for anyone to claim victory for something that has taken this long to produce," says Mark Baldassare, president and chief executive officer of the Public Policy Institute of California, a think-tank based in San Francisco.

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