Calif. budget vote ends 100-day impasse but not state’s deficit, which will face new governor

By Judy Lin, AP
Friday, October 8, 2010

California budget perpetuates deficit spending

SACRAMENTO, Calif. — Even as California lawmakers passed a budget Friday to end an unprecedented 100-day impasse, their spending plan looked to be so tenuous that the next governor was expected to face a multibillion dollar deficit from the moment he or she steps into office next year.

Two-thirds of the budget solutions signed by Gov. Arnold Schwarzenegger on Friday afternoon are based on one-time or temporary money — some of which may never materialize.

That will leave California to face “sizable annual budget problems in 2011-12 and beyond,” the Legislative Analyst’s Office said in a report issued after the Senate passed the main budget bill earlier Friday.

Lawmakers bridged a $19 billion shortfall, more than 20 percent of the $87.5 billion general fund spending plan. It includes no tax or fee increases but uses a combination of cuts, funding shifts, delayed corporate tax breaks and assumptions about money the state hopes to receive.

Among those assumptions is $5.4 billion in new federal funding, which is $4 billion more than the state has received so far this year and $2 billion more than Schwarzenegger projected in the revised budget proposal he released in May. Most of the money has not been authorized by Congress, which could change into Republican hands in November.

The heavy reliance on assumed federal money drew criticism from California Republican Rep. Darrell Issa who called California’s budget “an embarrassment.”

“It’s full of false assumptions and failed gimmicks,” Issa, R-Vista, said in statement.

Schwarzenegger, a Republican, and state lawmakers acknowledge there are no guarantees the state will collect that much more from the federal government. California was among at least 46 states that faced shortfalls this year due to the negative impact of the economy, according to the Center on Budget and Policy Priorities.

Of the $42 billion that has flowed into California from the stimulus program, about $32 billion has been awarded directly to state government for safety-net programs and to help stabilize the deficit, according to the state’s recovery task force.

“California, like many other states, has had to make many tough choices and we look forward to continued cooperation with Gov. Schwarzenegger as we work to create more jobs and move the economy forward for families in California and across the country,” said White House spokesman Adam Abrams in a statement.

In crafting their tardy budget deal, the governor and the legislative leaders from the Assembly and Senate also assumed the state will take in $1.4 billion in additional tax revenue if the economy improves and will net $1.2 billion from selling 11 state properties, even though the governor’s original projection said the sale would net $660 million.

At the same time, several revenue streams are drying up.

The federal stimulus program is about to end and temporary tax and fee increases the governor and Legislature approved last year will expire in the coming year. That will mean less revenue to cover education and health care spending commitments.

The state stands to lose about $8 billion when the temporary increases in the vehicle license fee, and sales and income taxes expire July 1, said Sen. Denise Ducheny, D-San Diego, chairwoman of the Senate budget committee.

“This budget will have a $10 billion deficit next year,” said state Sen. Jeff Denham of Merced, a candidate for a Central Valley congressional seat who particularly criticized the budget’s reliance on extra federal money. “I don’t expect to see any more bailouts next year. And I certainly don’t expect to see a $5 billion bailout for California.”

One of the gubernatorial candidates running to replace Schwarzenegger will inherit the ongoing deficit. Democrat Jerry Brown’s spokesman Sterling Clifford said Brown will bring all sides together “from the very beginning to reach real solutions,” while Republican Meg Whitman’s spokesman Darrel Ng said “Californians deserve a strong leader who is willing to make the tough decisions.”

Both candidates addressed the state’s budgeting during their first debate last month at the University of California, Davis, agreeing that the negotiation process should begin much earlier.

Whitman also advocated for a two-year budgeting cycle, while Brown said he would authorize an 18 percent pay cut for the governor’s office and the Legislature.

At a news conference Friday, Schwarzenegger pointed to the rainy day fund and changes to the pension system that were part of the budget at his insistence.

“I’m proud that we used this crisis as an opportunity to pass major reforms that would help ensure we will never have to suffer through a crisis like this again,” he said.

Lawmakers agreed to ask voters in 2012 to approve a larger rainy day fund to build a cash reserve for future economic downturns. They also agreed to higher retirement ages and increased pension contributions from state employees.

Schwarzenegger used his veto power to cut an additional $965 million by reducing funding to child care services, AIDS treatment programs and an overdue student date tracking system called the California Longitudinal Pupil Achievement Data System.

“Gov. Schwarzenegger’s final actions in office were directed at making life more difficult for California’s working parents and the poorest, sickest and most elderly,” Assembly Speaker John Perez, D-Los Angeles, said about a cut to services for mentally disabled students.

It’s unclear whether the state will have to issue IOUs or cut off funding for road and infrastructure projects. California had been without a budget since July 1, the start of the current fiscal year, which has prompted the state stop to paying thousands of contractors and some state employees.

The budget authorized the state treasurer to defer $5.5 billion in payments to schools and social services until the treasurer’s office can obtain short-term loans, a process that state typically undertakes until the majority of tax revenue arrives in the spring. It has not had the authority to get those short-term loans without an approved budget.

Associated Press Writers Don Thompson in Sacramento and Kevin Freking in Washington, D.C., contributed to this report.

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