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State Lawmakers Face Long Debate on Budget Deal

California Governor Arnold Schwarzenegger speaks to reporters outside his office July 22, 2009 in Sacramento, California. Schwarzenegger and legislative leaders reached a budget deal Monday to close California's $26 billion budget gap.
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Above: California Governor Arnold Schwarzenegger speaks to reporters outside his office July 22, 2009 in Sacramento, California. Schwarzenegger and legislative leaders reached a budget deal Monday to close California's $26 billion budget gap.

Lawmakers braced for a long debate Thursday as they vote on a complex budget plan struck by Gov. Arnold Schwarzenegger and legislative leaders that is designed to reverse the state's slide toward insolvency.

Under the compromise the 80-member Assembly and 40-member state Senate planned to start considering Thursday afternoon, the state hopes to eliminate less than 60 percent of a projected $26 billion deficit with spending cuts. The rest would get covered by one-time raids on local government funding and accounting maneuvers, such as deferring state employee paychecks by one day for a savings on paper of $1.2 billion.

Given past budget debates, whether the plan gets the Legislature's required two-thirds approval is not likely to be known until early Friday. It could take even longer before officials decide whether the deal will allow California to stop issuing IOUs.

Legislative leaders acknowledge their solution is imperfect and contains distasteful provisions such as offshore oil drilling and cuts across all major programs, including education, prisons, health care and welfare. But they're making their case to 115 other lawmakers that the plan is vital to address the state's cash-flow crisis.

"Given the enormity of the numbers, I'm damn proud of what the Legislature and the governor have done here to avoid a complete catastrophe," said state Senate President Pro Tem Darrell Steinberg.

But the plan's passage remains uncertain in a fractious Legislature that has been mired in a seemingly endless fiscal crisis for at least two years. Lawmakers from both parties also are reluctant to anger their constituents - not to mention jeopardize their own political ambitions - through a raid on local governments. Local governments have already announced they are ready to sue.

"We're going to fight Sacramento," said Los Angeles Mayor Antonio Villaraigosa. The city stands to lose $266 million over one year under the tentative pact, he said.

Health and welfare groups and public employee unions continued to protest the cuts. A group of seniors and disabled people on Thursday planned to give Schwarzenegger a giant mock thank-you card from oil and tobacco companies, which they said fared well under the deal at the expense of California's most vulnerable.

The overall deal needs to satisfy the bond markets so California will be able to take out short-term loans to cover daily expenses until next spring, when most of the state's tax revenue arrives. The plan also accelerates collection of about $610 million in income and corporate taxes so the state gets the money sooner.

State Treasurer Bill Lockyer has said it was too soon to tell the impact of the deal on the state's borrowing needs.

Obtaining those loans is essential to the state's ability to stop issuing IOUs to thousands of state contractors and vendors, which it has been doing in an effort to conserve cash. The total amount of IOUs issued for July alone was expected to reach nearly $3 billion.

Unless the budget for the current fiscal year is balanced by late August, the state controller has warned that California's cash shortage will grow so acute that he may start paying government workers with IOUs and halt contributions to state pension funds.

State employees also have been furloughed three days a month, the equivalent of a 14 percent pay cut, and the state's bond rating is hovering near junk status.

On Wednesday, Schwarzenegger predicted the agreement to balance the state's books would get through the Legislature despite "some hiccups, some obstacles, some bumps in the road" put up by special interest groups.

The plan would sell off part of the State Compensation Insurance Fund, a quasi-governmental agency that is the state's largest writer of workers' compensation insurance, for an estimated $1 billion. The state Legislature's budget analyst has said it's unlikely a sale could be completed by the end of the fiscal year, June 30, 2010.

The plan also would push back state employee paychecks by one day so that paychecks originally slated for June 30 would be issued July 1, the start of the 2010-11 fiscal year.

"It doesn't close the deficit," said University of Southern California political scientist Sherry Bebitch Jeffe. "Are they going to next year shift the last paycheck over again? That doesn't solve the problem."

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