Wyatt Buchanan, Chronicle Sacramento Bureau
San Francisco Chronicle
Monday, August 30, 2010

(08-30) 04:00 PDT Sacramento – —

As California’s budget impasse moves into record-breaking territory, and as the consequences of inaction multiply, people around the state and at the Capitol say it’s anyone’s guess as to when a spending plan will be passed.

The Legislature and Gov. Arnold Schwarzenegger are facing increasing criticism from the public and each other that they lack a sense of urgency to pass a budget that solves the state’s $19 billion deficit.

In past years, the state’s top five political leaders would be negotiating behind closed doors, working nights and weekends to pass a late spending plan. Not this year.

Although the budget is 61 days late today, the governor did not call for a “Big Five” meeting all summer until Thursday. The meeting, which included the governor and the four top Republican and Democratic leaders of the Senate and Assembly, didn’t even last an hour. The leaders agreed to schedule a vote on the budget for Tuesday – even though they don’t yet have a compromise plan.

Instead, the Legislature will vote on competing budget proposals, the Democratic plan and the Republican plan. Neither is expected to win the two-thirds majority necessary to pass the 2010-11 budget.

Thus, by week’s end, the deadlock will be the second-longest in California history. The longest delay was 85 days, in 2008. The governor has even raised the specter of his leaving office in January, six months into the fiscal year, without a budget in place.

Jack Pitney, a professor of political science at Claremont McKenna College, said that although the numbers were bigger last year when lawmakers faced more than $60 billion in deficits, “I think there is a sense of being at wit’s end.”
Out of ammunition

He said Schwarzenegger has virtually no leverage to compel a solution, and he said leaders are, metaphorically, out of ammunition. Asked what they can do if they have no ammo, Pitney said, “Run. You try to abandon the battlefield, which in a sense is what the delay is. But they can’t do it forever and eventually they are going to have to come up with a package that includes spending cuts and/or tax increases.”

The delay in passing a budget threatens to exacerbate already difficult situations for counties, education and other programs, and it can lead to higher costs for the state.

State Controller John Chiang has said California could begin issuing IOUs in the next few days; and last week state leaders including Chiang said the state plans to delay nearly $3 billion in payments to K-12 schools and the state’s welfare program, which will receive their October allotments in December. State workers again are being furloughed. These actions are designed to ensure the state has enough cash to pay the most critical bills, mainly debt. But actions such as the issuing of IOUs cost the state more because of interest.

Leaders on both sides say the impasse hinges on just how much of the $19 billion deficit will be covered by spending cuts.

No one is proposing to cut spending by the full $19 billion, which is a whopping figure – just under a quarter of the $84 billion the state spent in the year ending June 30. Instead, the Republicans have embraced the governor’s May budget proposal, which calls for $12.4 billion in cuts. That’s an amount nearly equal to what the state spends in higher education in a year.

Schwarzenegger’s proposal includes the elimination of the state’s welfare-to-work program, CalWORKS. This cut would make California the only state in the nation without such a program. The plan also calls for eliminating almost all child care programs and cutting local mental health funding by nearly 60 percent.

The Democratic plan would reduce spending by $8.3 billion with many similar but smaller cuts than the governor has proposed, including to prisons and in state employee pay. The $4 billion difference is made up largely with delays in corporate tax breaks and increases to the income tax and vehicle registration fees. The plan also includes shifting some of the state’s current duties to local governments.

Both plans rely on internal borrowing and federal help that has yet to fully materialize to cover much of the remaining deficit.
Democrats’ complaints

“They (Republicans) haven’t had the sense of urgency,” said Assembly Speaker John Pérez, D-Los Angeles. “I hope they do now. … The luxury of time has long since passed.”

Pérez paused several seconds when asked whether Republicans were willing to compromise.

“They have to,” he said. “Just like we have to.”

State Senate President Pro Tem Darrell Steinberg, D-Sacramento, said California already has reduced spending – the general fund has shrunk by $20 billion over the past two years – by cutting health, education, prisons and welfare programs as revenues dramatically declined due to the ailing economy. But, Steinberg added, Republicans are giving Democrats little credit for those past cuts.

“We’re willing to cut more because we know we have to, but it just strains credibility that the only way this goes down year after year is the majority party makes the deepest of deep cuts and neither the minority party nor the executive branch is willing or able to talk about any form of ongoing revenues,” Steinberg said.

“Certainly, the Legislature’s epic failure to produce a budget is disappointing, but it’s important that we fight against tax increases and for the reforms we need,” said Aaron McLear, spokesman for Schwarzenegger, who is scheduled to leave the state for a six-day trade mission to Asia beginning Sept. 9.

The governor has demanded long-sought pension, budget and tax reforms as part of the budget deal. McLear said state leaders have no choice but to make deep cuts. “We have a finite amount of money to spend. The governor is not going to sign a tax increase (and that’s) going to require us to make hard decisions and cut,” he said.

Schwarzenegger and the handful of Republicans needed to reach the constitutionally mandated two-thirds majority to raise taxes and pass a budget agreed last year to $12.5 billion in temporary tax increases. Voters overwhelmingly rejected extending those increases as part of a May 2009 ballot measure.

Steinberg said he is not interested in winning an argument and that he wakes every day with a sense of urgency to solve the crisis before it becomes an economic catastrophe, though he said it would not be “at any price.”
Republicans’ stance

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