State budget impasse looks poised to worsen

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1 Page 1 of 3 Matthew Yi, Chronicle Sacramento Bureau Monday, August 11, 2008 (08-11) 04:00 PDT Sacramento -- California's budget impasse, which hits Day 42 today, may get a lot worse if Gov. Arnold Schwarzenegger and the Democratic-controlled Legislature do not reach a compromise in the coming days. Two significant pieces of the budget negotiations that require voter approval will miss the deadline for making the November ballot in about a week, making them no longer viable. Secretary of State Debra Bowen has said Saturday is the last day for new measures to be added to the supplemental ballot on Nov. 4. Time is quickly running out for Schwarzenegger's proposal to borrow against future state lottery sales to help erase the current $17.2 billion budget deficit and jump-start a rainy-day fund to avoid future fiscal crises. Any change in the state lottery requires voter approval because the lottery was originally enacted through the ballot box. Budget overhaul is the other issue Republicans want to go before voters in the fall, and it is perhaps even more significant because it has been a rallying cry of the state's Republican lawmakers. Taking lottery and budget overhaul off the negotiating table could aggravate the already polarized budget debate between the governor and the Legislature, capitol observers say. Digging in "If that happens, you'll see this budget dug in and you'll see (the longest impasse) ever. And that's unfortunate," said Assembly Republican leader Mike Villines from Clovis (Fresno County). The state has been without a budget since the new fiscal year began July 1. If the lottery and budget overhaul aren't in play, that would leave essentially three ways to solve the budget deficit: -- Spending cuts in programs, which Democrats argue are already suffering.

2 Page 2 of 3 -- Taxes, which Republicans refuse to support. -- Borrowing from money earmarked for transportation and local government, which Democrats say they won't do. "I'll have Thanksgiving dinner here with the governor before I borrow," Senate President Pro Tem Don Perata, D-Oakland, said last week. The fewer options legislators have, the harder it will be for them to negotiate the budget, said Larry Gerston, a political science professor at San Jose State University. In recent weeks, Schwarzenegger has tried to break the logjam by laying off more than 10,000 state workers; attempting to slash pay of nearly 200,000 employees to the federal minimum wage of $6.55 an hour; and reversing his earlier stance of no tax increases by proposing a temporary, 1-cent bump in the sales tax. Last week, he threatened not to sign any bills until the Legislature approves a budget. While his actions have failed to push the lawmakers toward a compromise, the moves illustrate his frustration over the budget impasse. "There is no solution to this budget crisis without budget reform," said Aaron McLear, a spokesman for Schwarzenegger. "There will be a total meltdown in negotiations unless real budget reform is included." There are three primary pieces to the budget reform conversation at the Capitol: a spending cap, a large rainy-day fund and midyear cuts in spending during financial crises. All parties generally agree that the state should have a large savings account for times of severe economic downturn. But there has been intense debate over limiting spending, and how and who would make midyear cuts during fiscal crises. Options politicized Republicans have demanded a strict spending cap pegged to population growth and inflation, an idea Democrats have soundly rejected. Schwarzenegger has proposed giving the governor the authority to make midyear cuts, a plan that Democrats are weary of. Still, Assembly Speaker Karen Bass, D-Baldwin Vista (Los Angeles County), said she hopes budget overhaul will be part of negotiations. "I'm willing to work 24 hours a day, seven days a week to get this done. I do not want to stall so that

3 Page 3 of 3 we pass the deadline (for putting a budget-reform measure on the ballot). I don't want to do that," she said. Gerston said this year's budget impasse is by far the worst in 30 years. He said budget negotiations could run into September without budget overhaul on the table, possibly eclipsing the longest period without a state budget in the past three decades: Sept. 5 in "And at some point along the way, the public is going to get pretty disgusted about all this," he said. Matthew Yi at myi@sfchronicle.com. This article appeared on page B - 1 of the San Francisco Chronicle

4 Time may be running out for California to craft budget deal - sacbee.com Page 1 of 3 This story is taken from Sacbee / Politics. Time may be running out for California to craft budget deal By Jim Sanders - jsanders@sacbee.com Published 12:46 am PDT Sunday, August 10, 2008 Ground zero in the state's bitter budget standoff has become the calendar. Mark Saturday, Aug. 16. Republicans who vow not to pass a new state budget unless it contains long-term fixes to chronic budgeting problems see time running out. Voters would need to approve any strong spending restraints as constitutional amendments and Aug. 16 is the deadline set by California Secretary of State Debra Bowen for reaching the November ballot. Privately, lawmakers say there may be wiggle room to the deadline, perhaps until the end of the month, but all sides agree that time is short. Gov. Arnold Schwarzenegger has insisted upon long-term changes as part of any budget deal. "There will be a total meltdown in negotiations if we pass the deadline to get budget reform on the ballot," spokesman Aaron McLear said. Republicans have complained for years that binding restraints are needed to cure overspending in boom years that leaves massive red ink when the economy nose-dives. Schwarzenegger proposed a temporary 1-cent increase in the sales tax last week in exchange for two long-term fixes: Authority for the governor to cut state operations budgets by up to 7 percent and to suspend state cost-of-living adjustments when a midyear revenue shortfall occurs. Creation of a "rainy day" fund to consist initially of at least 3 percent of state general fund revenues. In years when state revenues exceed projections by 5 percent, the windfall would flow into the new fund after schools received their share. Money could be withdrawn from the rainy day fund only in response to an economic downturn, only for limited purposes and only after a two-thirds vote of the Legislature.

5 Time may be running out for California to craft budget deal - sacbee.com Page 2 of 3 Republicans applaud the two proposals but say even more is needed: a spending cap to restrict annual expenditures through a formula tied to growth in population and inflation. "The most important thing we could do for California is to pass a spending cap and Democrats refuse to even talk about it," Assembly Republican leader Mike Villines said. Republican lawmakers said Democrats may be playing games with budget talks, running out the clock, in an attempt to sidestep GOP demands. "I've heard people say it could be Armageddon," said Senate GOP leader Dave Cogdill when asked how his party would react to a strategic Democratic stall. Villines said his members are willing to be flexible, but not steamrolled, in budget talks. "The point is, without budget reform, I don't see how we close out on this budget," he said. How will Republicans react if the deadline passes? "We'll have to cross that bridge when we get there," Villines said. One possibility would be for state officials to strike a deal this year and call a special election to vote on it next year. Doing so would cost tens of millions of dollars, however, and sever any ties between a new state spending plan and budget reform. Senate President Pro Tem Don Perata and Assembly Speaker Karen Bass, both Democrats, contend that budget talks have been slowed by the GOP's failure to provide a detailed plan for curing the $15.2 billion budget deficit. "There's no stalling," said Lynda Gledhill, Perata's spokeswoman. "We have been and continue to work very hard to craft a budget compromise." "We've had a budget (proposed) for nearly two months, the Republicans have put nothing on the table," said Steven Maviglio, Bass' spokesman. "Who's stalling?" Legislators have another reason to watch the calendar as well. Many hope to strike a budget deal in time to attend their party's national convention Aug for Democrats and Sept. 1-4 for Republicans. Neither party can dominate budget talks because a two-thirds vote of each legislative house is needed to pass a budget. "They're both going to have to swallow something they don't like at all in order to get something they want," said Dan Schnur, new director of the Jesse M. Unruh Institute of Politics at the University of Southern California and a former GOP strategist. Democrats say they are willing to discuss a rainy day fund, but oppose granting midyear

6 Time may be running out for California to craft budget deal - sacbee.com Page 3 of 3 budget-cutting authority, or a state spending cap. Bass said budget crises can force cuts in pivotal services, and the state needs flexibility to restore them. "I'm concerned about any formula that is going to be an additional way that our hands are tied," she said. "I don't want to see that happen." But Assemblyman Roger Niello, R-Fair Oaks, said that Bass' logic is "exactly backward." "What we have to do is something where we will limit our spending growth exactly when times are strong, so that we create a real reserve (to avoid) huge tax increases when times are bad." Neither Democrats nor Republicans are warm to raising the sales tax. Democrats want a tax increase targeting corporations or the wealthy. They feel a sales tax hike would hit low income residents hardest. Cogdill said that raising sales taxes could devastate businesses. "This economy will not survive more taxes," he said. "It's a non-starter for us." Go to: Sacbee / Back to story This article is protected by copyright and should not be printed or distributed for anything except personal use. The Sacramento Bee, 2100 Q St., P.O. Box 15779, Sacramento, CA Phone: (916) Copyright The Sacramento Bee