Giveth+Taketh away: The plan would cut $8.6 billion in K-14 education funding, but under the deal lawmakers would ask voters to change state law to restore that money for schools.
By Dan Smith and Kevin Yamamura | Sacramento Bee
Wednesday, Feb. 11, 2009 -- Legislative leaders and Gov. Arnold Schwarzenegger have reached a tentative deal to close the state's projected $40 billion budget gap, according to sources close to the negotiations.
Staff members are working out some drafting issues, one source said, but a vote is scheduled for Friday.
The plan includes $15.8 billion in spending cuts, $14.3 billion in taxes and $10.9 billion in borrowing, according to a budget outline obtained by The Bee.
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Highlights Calif. budget proposal
By The Associated Press
Wednesday, February 11, 2009 -- Here is some of the language that emerged Wednesday as lawmakers and Gov. Arnold Schwarzenegger sought to forge a compromise on the state's budget deficit. Democrats want to bring a budget package to a vote on Friday.
Additionally, lawmakers were waiting to see how much federal money California would receive under the stimulus bill that appears headed to President Barack Obama's desk. It could change how much money the state would have to borrow to get through the next fiscal year.
- Raises between $12 billion over two years or $14 billion over five years through a variety of taxes. Under the proposal, the higher taxes would be in effect for two years. However, Republicans would allow taxes to stay longer — nearly five years — if voters approved a state spending cap.
- Increases the state sales tax by 1 percent for two years or five years.
- Raises the fee for licensing vehicles to 1.15 percent of market value, up from the current .65 percent. A portion of the fee will be dedicated to law enforcement.
- Adds a 12-cent gasoline tax.
- Imposes a one-time 5 percent surcharge on people who owe personal income tax in 2009.
- Reduces the amount taxpayers can claim on dependent care credit to the federal level of $100 instead of $300.
- Reduces education spending by $8.6 billion over two years, likely forcing schools to lay off teachers, slash salaries and postpone spending on construction and textbooks purchases. However, the proposal would give districts greater flexibility in spending money that is normally dedicated to specific programs.
- Continues a two-day-a-month furlough for 238,000 state workers, trims overtime pay and eliminates Lincoln's Birthday and Columbus Day as paid state holidays, saving $1.4 billion.
- Cuts prison medical budget by 10 percent to save $181 million.
- Eliminates the state's annual cost-of-living increases for recipients of the state's welfare-to-work program known as CalWORKS to save $79 million.
- Eliminates the state and federal cost-of-living increase for seniors and disabled people receiving Supplemental Security Income/State Supplementary Payment for a $594.1 million savings.
- Unless the federal government provides extra state aid, the legislative leaders have agreed to make further reductions to the courts; Medi-Cal, the state's health insurance program for the poor; CalWORKS; in-home support for seniors; and other social service programs by $948 million.
- Asks voters to approve a $10 billion plan to borrow against the lottery's future revenues over the next two fiscal years.
- Asks voters to temporarily shift $227 million in voter-approved funding from Proposition 63, the state mental health fund, to pay for a low-income child development program known as the Early Periodic Screening, Diagnosis and Treatment Program.
- Asks voters to redirect $608 million in First 5 money for early child development to other children's programs.
- Imposes a limit on the amount the state can spend each year based on state revenue over the previous 10-year period. Money above that amount would be saved in a rainy day fund.
- Asks voters to modify Proposition 98, the voter-approved minimum school funding guarantee, to protect education funding when state revenue rebounds after lean budget years.
- Grants tax credits for small businesses, corporations that operate in multiple states and movie studios to encourage production within the state.
- Removes environmental hurdles for some transportation projects through 2010. Allows the state to expand partnerships with private companies on projects such as toll roads.
- Exempts environmental reviews for selling surplus state property.
Leaders are counting on federal stimulus money as the package approaches closure in Washington. If California receives at least $10 billion, more than half of that money -- $5.5 billion -- would eliminate the need for a short-term loan, while $1.8 billion would eliminate taxes and $1.2 billion would eliminate spending cuts.
The plan would raise sales taxes by 1 cent on the dollar, increase income taxes across the board and hike the vehicle license fee from the current 0.65 percent of the vehicle's value to 1.15 percent. The taxes would last a minimum of two years. If the federal stimulus money arrives, the income tax increase would be reduced.
The proposal would cut the state's dependent credit in half, raising taxes for parents and those who take care of elders.
The deal asks the Legislature to approve whatever deal is struck between Schwarzenegger and state employee unions to save $1.3 billion, whether through furloughs or other means. Administration officials have been bargaining with labor unions over the governor's twice-monthly furlough plan, which began last week.
While businesses were unable to obtain rollbacks in labor provisions related to meal breaks and overtime pay, they scored victories on tax code changes. A major shift in how the state calculates each company's sales could save businesses an estimated $650 million in state taxes. Republicans also have asked for a $2,000 tax credit per each new employee hire.
The budget package relies on $10.9 billion in borrowing. State leaders are counting on a plan to borrow against future California Lottery revenues, which also would require voter approval. The lottery proposal, passed last year in the Legislature, estimated that California would receive $5 billion in the next fiscal year for budget relief, but it is unclear whether the state could obtain as much money given the economic downturn and tight credit market
The state would obtain another $5.5 billion in short-term loans with no defined way to pay it back by 2011. If the state receives more than $10 billion in stimulus money, it would not seek those loans.
The plan would cut $8.6 billion in K-14 education funding, but under the deal lawmakers would ask voters to change state law to restore that money for schools. The proposal also reduces money for California State University and the University of California by 10 percent.
Schwarzenegger would score wins on environmental changes to stimulate construction, under the plan. The proposal gives the state unlimited authority to use public-private partnerships for state transportation projects through 2017. It also authorizes a limited number of projects to use a process that combines the design and construction phases of projects, a change opposed by the state's public engineers' union. And the proposal exempts eight major state highway projects from environmental review while allowing for an expedited permitting process.
Legislative leaders met with Schwarzenegger until late Tuesday night and have tentative plans to convene today. Both Republican caucuses have scheduled lunch meetings.
Senate Republican leader Dave Cogdill said he could not guarantee votes, but told his members that the deal is as good as they're going to get. "I've negotiated it to the point where I think it doesn't get any better," he said today, emerging from a private GOP caucus. "We're waiting to see all the language and all of that so I'm not ready to commit who the votes will be at this point."
Other legislative leaders were more vague.
Asked to confirm a tentative agreement, Assembly Republican leader Mike Villines responded with a short e-mail saying simply: "Sorry ... I can't say anything buddy."
Senate President Pro Tem Darrell Steinberg, speaking to the Sacramento Press Club luncheon, said there was a "common framework" for a deal with some details to be worked out.
Assembly Speaker Karen Bass said, "We're very close and I'm optimistic that we'll have a vote before the week is over."
But Bass declined to confirm a deal, saying that language must be drafted and there are several "loose ends" to be tightened.
"I've been in this position now, it seems like every week for the last five weeks," she said. "And, you know, we get back in the room and something blows up."
As a trade off for new taxes, Republicans demanded that the deal include a limit on future state spending. Under the tentative agreement, the restriction would require the state to place money into a rainy-day fund after reaching a limit determined by state revenues over a 10-year period.
Voters would have to approve the spending limit, likely in a special election later this year, and it is particularly controversial among education groups who constantly seek more state money for schools. Concerned that the state's powerful teachers' union would try to kill the spending restriction at the ballot, budget negotiators included a provision that would extend the new taxes to five years if the spending cap passes.
Steinberg told the Press Club the spending cap would not include Proposition 98, the 1988 ballot measure that guarantees levels of state support for schools. School spending, he said, would still increase along with future revenues.
Economists have estimated that California could receive at least $10 billion in federal stimulus relief for schools and social services. That money could offset some proposed budget cuts in those areas, depending on how much California receives.
Steinberg said the state is counting on "significant" money from the federal government from the stimulus package that is approaching closure in Washington. That money, he said, could offset some proposed budget cuts, depending on how much California receives.
Republicans and Schwarzenegger also asked for business-friendly changes in environmental and labor laws, emphasizing that looser regulations would help the economy rebound in California. While sources said unions have been successful in fighting labor changes, the deal exempts some major state highway projects from environmental review to hasten construction.
Steinberg said a deal must be approved this week to head off postponement of 145 Caltrans projects, "massive" layoffs of state employees and a further lowering of the state's credit rating.
Asked if large-scale layoffs could be averted, Steinberg answered, "Things are moving in a positive direction."
The leaders have been especially tight-lipped about details of the budget elements, fearing too much advance knowledge will allow interest groups to mobilize and pressure lawmakers. One of the most powerful labor groups, Service Employees International union, launched an attack this afternoon after early reports of a deal.
"The cash crisis is real and needs to be solved with new revenues," said Courtni Pugh, SEIU executive director. "It is not an acceptable trade to fix this year's budget by destroying our future with deeper cuts made permanent by a budget cap."
A Teamsters official recently threatened to launch a recall against lawmakers who vote to approve a relaxation of labor rules. The California Republican Party next week will consider a resolution to censure any GOP lawmaker who votes to increase taxes.
Jim Sanders, Shane Goldmacher and Aurelio Rojas of The Bee's Capitol Bureau contributed to this report.