By Kevin Yamamura
kyamamura@sacbee.com
Published: Sunday, Feb. 21, 2010 – 12:00 am | Page 1A

In the midst of an economic free fall one year ago, state lawmakers scrambled to pass a $40 billion deficit solution in an emergency session.

Democratic leaders locked down the Capitol for days at a time. A handful of Republicans believed the situation was so desperate that they voted for tax hikes.

The pace is markedly slower this time.

California faces a $19.9 billion deficit, but lawmakers and Gov. Arnold Schwarzenegger have decided against trying to solve the problem in one February fell swoop. State leaders have held few serious negotiations so far, and legislators are girding for another summer budget battle.

Democrats hope to hold off education and social service cuts until after the governor issues his revised budget in May. Lawmakers say they want to study the impacts of program cuts and hold out hope that revenue will improve. Waiting also helps Democrats delay votes that could hurt key labor and education supporters until after the June 8 primary.

“I am not willing to wade into cutting health and human services and education deeper as our first budget act in 2010,” said Senate President Pro Tem Darrell Steinberg, D-Sacramento, at the Sacramento Press Club. “Let’s see what kind of economic recovery we have, let’s see how big the hole is, let’s see what kind of revenue options we have. But we’ve done enough damage. And I’m not happy about it.”

The Legislature is considering a $5 billion stopgap plan this week, although most of its solutions will not have an impact until July or later. Democrats crafted the plan to avoid significant political confrontations, relying largely on majority-vote bills that need no Republican votes.

Senate Minority Leader Dennis Hollingsworth, R-Murrieta, said Thursday that the plan relies too heavily on fund shifts and increased tax enforcement on businesses, while it has too few actual spending cuts.

“It’s another issue of continuing to not deal with the tough, difficult decisions,” Hollingsworth said on the Senate floor. “There are not enough reductions in health and human services and education funding … in order to make the proposal balance and solve the problem.”

The most significant action the Legislature will consider this week is approving $1 billion in payment deferrals to ensure California has enough cash to pay its bills in April. That buys lawmakers time to hold off serious budget talks because it averts significant fiscal consequences such as IOUs or bond sale delays.

While it might appear as though lawmakers are simply procrastinating, there is some justification for waiting until the governor’s May revision.

Last year, state leaders proclaimed in February they had enacted one of the earliest budgets in state history. But three months later, state revenue declined dramatically and voters rejected several of their budget solutions. They had to reopen the budget in late May, facing a new $24 billion deficit.

“If it gets worse, they’re going to have to do it over again,” said Robert Huckfeldt, a University of California, Davis, political science professor. “If it gets better, they’re going to have to go through this political pain for nothing.”

Steinberg said he believes it will get better. He predicted Wednesday that the deficit could drop from $19.9 billion to only $7 billion to $9 billion by the May revision.

The stopgap plan would shave $5 billion off the deficit total. Based on President Barack Obama’s budget proposal, California would receive $3 billion in additional federal aid.

The Department of Finance said Thursday the state received $1.36 billion more than projected in January revenue. The state has now collected $1.77 billion more than forecast through seven months of the 2009-10 fiscal year.

There are also negative risks, however. If courts block the state from taking local redevelopment funds, the deficit would increase by $2 billion.

Fiscal conservatives may challenge a gas-tax swap proposed by Democrats worth about $1.8 billion. The majority-vote bill would roll back corporate tax breaks and allow local governments to initiate ballot measures that raise gas fees to pay for transit.

“The Legislature has perfected passing unconstitutional legislation down to an art form,” said Jon Coupal of the Howard Jarvis Taxpayers Association.

The current legislative package includes some of Schwarzenegger’s suggested spending cuts, such as an $811 million reduction to prison medical care and a cap on state payroll costs with a 5 percent reduction.

But Democrats opted to exclude his major social service reductions. They will not vote this week on about $1 billion in proposed cuts to In-Home Supportive Services or reducing SSI/SSP grants for low-income elderly and disabled residents. They will not consider reducing eligibility to Healthy Families low-cost health insurance for children.

The nonpartisan Legislative Analyst’s Office had recommended that lawmakers take action on health and social service reductions now in order to save money as early as possible. The changes take three months of implementation time, so Schwarzenegger wanted them installed by March 1.

But Democrats say they first want to conduct a full review of the proposals and consider the consequences for recipients of state services.

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