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No Sign of Deal to Close Calif. Deficit

— With the threat of IOUs just days away, Democratic and Republican lawmakers show no sign of compromise in their efforts to close California's $24.3 billion deficit.

Lawmakers returned to the Capitol on Monday after Sunday night legislative sessions that failed to move the two sides closer.

In a sign of the Legislature's dysfunction in the face of an impending fiscal meltdown, the 80-member Assembly voted late Sunday to pass a Democratic budget plan that Gov. Arnold Schwarzenegger has vowed to veto. Republicans have said it is unconstitutional because it would raises taxes without the required two-thirds vote.

The Senate convened Monday morning to take up the 14-bill Democratic package, but the floor session was put on hold as lawmakers huddled with their respective parties.

The Sunday and Monday sessions called by the Democratic-controlled Assembly and Senate drew a sharp response from Schwarzenegger, who reiterated his pledge to veto the plan if the Senate sent it to his desk. He said Californians want state government to live within its means and not raise taxes.

"The Legislature will have a difficult time explaining to Californians why they are running floor drills the day before our budget deadline," the governor said in a statement. "We do not have time for any more floor drills or partial solutions. It's time for the Legislature to send me a budget that solves our entire deficit without raising taxes."

Despite the flurry of legislative action, California lawmakers were no closer to solving a budget crisis that has pushed the state to the financial brink.

The state controller has said he will have to start issuing the IOUs unless lawmakers balance the budget by the end of the fiscal year on Tuesday.

The state's deficit is roughly a quarter of the state's general fund and has been widening this year as tax revenue has plunged. That has left the state with too little money to pay all its bills.

Roughly $3 billion worth of IOUs will be issued in July unless a compromise on closing the deficit is reached quickly. They will be sent to state contractors, college students, welfare recipients, low-income seniors, the disabled and others who depend on or deliver social services.

Democrats, the majority party in both houses, want to solve the deficit by cutting $11 billion in spending, raising the vehicle license fee by $15 to keep state parks open and increasing taxes on tobacco products and companies that drill for oil.

Gov. Arnold Schwarzenegger has proposed more aggressive cuts of $16 billion, including dropping health care for 930,000 low-income children and eliminating the state's main welfare program. He also would borrow $2 billion from local governments, take $6 billion from other government accounts, accelerate personal and corporate income tax collections, and cut state employee pay by another 5 percent.

Republican lawmakers agree with Schwarzenegger about the higher level of cuts and on his refusal to consider tax increases. They said Californians do not want more tax increases after the governor and Legislature raised income, sales and vehicle taxes earlier this year.

In a sign of how the fiscal crisis is already hitting home, the board that oversees Healthy Families, which provides reduced-cost medical coverage to children, was scheduled to vote Monday on whether to close the program to new enrollment.

It would be the first time new applicants would be rejected since the program started in 1997, said Kelly Hardy, associate director of health at Children Now, a health care funding advocacy group.

"The number of kids enrolling each month has been increasing recently because of the recession. A lot more parents are losing jobs and losing employer-based coverage, so there's a lot more children who need this," Hardy said.

She said Healthy Families received applications for about 30,000 children a month for a yearlong period ending in February - up about 10 percent from the year before.

Democrats in the Assembly passed their tax plan late Sunday night on a simple majority vote after they could not get enough Republican support to reach the two-thirds threshold necessary for it to take effect immediately. The governor would still have to sign it and said he will not.

California already has a budget in place for the 2009-10 fiscal year, thanks to a two-year budget package approved in February, but the spending plan is badly out-of-balance. The main culprit is the recession, which caused a 34 percent plunge in personal income tax revenue during the first five months of the year.

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