Calif. Legislature begins debate over closing $19B deficit after record-long budget impasse

Calif. Legislature begins budget debate _ finally

SACRAMENTO, Calif. — The Legislature began taking up a series of long overdue budget bills Thursday after a record-setting impasse left California on the brink of issuing IOUs and cutting off funding for road projects as it wrestled with a $19 billion deficit.

An initial vote in the Assembly failed to muster the necessary two-thirds majority needed for approving a budget, but leaders from both parties were optimistic the legislation eventually would pass.

Assembly Speaker John Perez, D-Los Angeles, called the budget proposal “a solid but sober deal for California.”

“In the era of the Great Recession, there is no such thing as a perfect budget,” he said. “This is a budget that reflects the compromises necessary to find a two-thirds majority.”

The sessions in the Assembly and Senate were the first floor discussions of a budget agreement reached last week by Gov. Arnold Schwarzenegger and Democratic and Republican leaders from both houses. The meetings took place a record 99 days into the current fiscal year.

The proposal contains no new taxes or fees, and just 40 percent of the gaping deficit would be closed by additional spending cuts. The rest would be addressed through rosy revenue assumptions and creative accounting.

The plan counts on the state receiving $5.3 billion from the federal government — $4 billion more than the state has received so far this year and nearly $2 billion more than Schwarzenegger projected in May.

In addition, it assumes a statewide economic recovery that will generate an additional $1.4 billion in tax revenue.

If those assumptions fall short, the difference will be added to the budget deficit that will greet Schwarzenegger’s successor in January.

Also under the deal, nearly $2 billion in payments to K-12 schools and California’s community colleges would be delayed until the next fiscal year.

If approved, the budget would allow Schwarzenegger to claim victory in two of the three areas of reform he demanded as a condition of signing a spending plan.

Lawmakers agreed to ask voters in 2012 to approve a larger rainy day fund to build a cash reserve for future economic downturns. They increased the maximum size of the fund from 5 percent to 10 percent of general fund revenue.

The legislative leaders and most of the state’s public employee unions also agreed to pension reforms that included higher retirement ages for state employees hired after Nov. 10 and higher contribution rates for all state workers.

The largest state employees’ union, Service Employees International Union Local 1000, reached agreement on a tentative contract late Wednesday.

The budget plan does not include the tax changes the governor had sought, including recommendations released last year by a commission created by the governor and Democratic leaders. Schwarzenegger spokesman Aaron McLear said the governor will keep pushing for tax changes he believes are needed to solve California’s long-term budget imbalances.

Assembly Minority Leader Martin Garrick, R-Solana Beach, highlighted what he described as the budget proposal’s three main accomplishments.

The plan “doesn’t hurt struggling taxpayers, out-of-work Californians and economic recovery, brings the state closer to living within its means and benefits the state this year and into the future,” he said.

As lawmakers work toward a final deal, the state’s ability to meet its financial obligations was a mounting concern.

The state needs a signed budget in order to start borrowing money to bridge the cash shortage that is typical each fall before the springtime influx of tax revenue, said Joe DeAnda, a spokesman for the state treasurer’s office.

However, the record-late budget is making it more difficult for the state to issue long-term bonds to support $7 billion worth of public works projects this fall, he said.

The state will need short-term borrowing as soon as possible, said Hallye Jordan, a spokeswoman for the state controller’s office, which will announce Friday if California will need to issue IOUs for lack of cash.

“Bottom line is, we’ve got $8 billion in payments we couldn’t make through October — unprecedented, a three-month delay in our payments,” Jordan said. “They’ll be payable with the enactment of the budget, and we don’t have enough cash flow. We’ll have to do something.”