Sacramento Insiders Discuss Details of State Budget Agreement

MAUREEN CAVANAUGH (Host): I'm Maureen Cavanaugh. You're listening to These Days on KPBS. Lawmakers in Sacramento have reached an agreement to shore up California's $26 billion budget deficit but they have not yet sealed the deal. After days of negotiations with Governor Schwarzenegger and Republicans, Democratic leaders are hoping to get a vote on a budget plan by the end of the week. But while the proposal solves some problems, it would also create others, not the least of which is a plan to take $4 billion from already cash-strapped cities and counties around the state. The plan includes major cuts to school budgets. And state workers are very unhappy with the plan to extend furlough days through June of next year. With me to discuss the latest on the budget deal in Sacramento are my guests, Kevin Yamamura, senior writer for the Sacramento Bee's Capitol Bureau. And, welcome, Kevin.

KEVIN YAMAMURA (Senior Writer, Sacramento Bee): Thanks for having me.

CAVANAUGH: And Leo McElroy, non-partisan Sacramento political consultant and contributor to Morning Edition here on KPBS. Good morning, Leo.

LEO MCELROY (Non-Partisan Political Consultant): Good morning, Maureen.

CAVANAUGH: Kevin, this budget deal was announced by the governor last night. Can you tell us how that came about?

YAMAMURA: Well, the governor's been meeting with legislative leaders for weeks to get this deal done. And they finally, after negotiations, reached a deal that I don't know that anybody can say everybody was exactly happy with but they certainly reached a point that they felt that they could go back to their caucuses and get – perhaps get enough votes to get this passed and resolve the $26 billion deficit.

CAVANAUGH: Now I'm going to ask you both this. I'm going to start with Kevin but, Leo, feel free to chime in, please. We hear that there are painful budget cuts in this deal. Kevin, start telling us what they are. What are the painful budget cuts?

YAMAMURA: Well, you have about $6 billion in new cuts to K-14 schools and $3 billion in cuts to higher ed. A lot of people have heard about impacts on schools, layoffs to teachers. Districts have the ability to shorten the school year, and higher ed raising tuition again. There are cuts to what Democrats saw as priority safety net programs, MediCal, in-home supportive services, which are workers who help some low income Californians remain in their homes instead of in nursing homes, welfare and also Healthy Families medical insurance.

CAVANAUGH: And what about, Leo, this idea of taking money from cities and counties around the state?

MCELROY: Well, that's where a lot of the political pressure's going to come from on legislators of both caucuses because their local constituents and their local communities are going to scream bloody murder over this one. If you talk to city and county officials as I've been doing over the last couple of weeks, what you're hearing is a great deal of fear about where the cuts are going to come and how they're going to implement them at the local level. These are theoretically coming out of redevelopment funds and highway funds, that sort of thing, but local governments are going to feel the pinch in their general fund expenditures and right now they're sitting there saying, okay, do we cut 25% of our fire stations and make the fire response time slower? Do we just let potholes grow in the streets? Or do we risk public safety by cutting police response? And there is frequently a tendency on the part of local government to say, okay, well, let's let them feel what the impact is of this decision and take courses that will be directly affecting the public.

CAVANAUGH: Right. And, Leo, back to the school budget cuts. I know that one of the hang-ups in reaching this tentative deal was the idea of let – get – reimbursing the schools in years to come when the economy improves. Was that conflict resolved? Are the schools eventually going to get some of this money back?

MCELROY: Well, eventually, they're promised to get some of the money back and, of course, we all know how good the promises are. But it's – it really is a deal that essentially has said, yes, we will say that we do owe you the money and we will promise to pay it back when we get some money in our pockets.

CAVANAUGH: Right, it's in – the check's in the mail.

MCELROY: Yeah, you bet.

CAVANAUGH: Well, I'm speaking with Leo McElroy. He is Sacramento political consultant and he contributes to Morning Edition here on KPBS, and Kevin Yamamura, senior writer for the Sacramento Bee's Capitol Bureau. And we are talking about the tentative budget deal announced by Governor Schwarzenegger last night. And, Kevin, the state, as we know, has been issuing IOUs to pay its bills since the end of the fiscal year, and now we hear that some banks are refusing to accept those IOUs so if this budget deal actually does pass the legislature, do we know how soon they can stop issuing IOUs?

YAMAMURA: Well, the Controller's office said as soon as the Controller can determine the state has enough cash or at least has enough solutions to provide enough cash to where he's confident that he can pay all the bills with cash that he can stop the IOUs. What is likely to happen, is the state will need to go to Wall Street and get a short term cash loan and that's done partly because every year we deal with an odd scheduling – odd timing in terms of when we receive cash and when we have to make payments for all our bills. But in any case, he's going to want to make sure this plan is something that can sell on Wall Street in conjunction with the State Treasurer and the Treasurer's office had some confidence last night that this was a plan that would work.

CAVANAUGH: So, in theory, even if the legislature does approve this budget deal at the end of the week, they could still keep issuing IOUs instead of regular payments?

YAMAMURA: They could keep issuing IOUs. The Controller's office, as of yesterday, had not said exactly when they would stop and he does have the authority to stop that and they haven't indicated yet. Perhaps we'll hear in a few days when he might do that.

CAVANAUGH: Another question about the IOUs, Kevin, I know that the issuance of the IOUs, the fact that the state doesn't have any cash and the fact that until – well, we still don't have a budget deal reached to cover the deficit, has all hurt the state's credit rating. Tell us a little bit about that.

YAMAMURA: Two of the major credit rating firms this month, Moody's and Fitch, had downgraded California's credit rating by a couple of notches and they're – and California is very close to what they term junk bond investment status, a couple of notches just above that. The Treasurer last week warned that if this budget impasse continued much longer we'd be heading into dangerous territory. So – and associated with the lower credit rating, of course, is a lot of higher interest costs in terms of all the borrowing that California needs to do both for its infrastructure investments and for other types of payments, so…

CAVANAUGH: And, Leo, how long do you think that that's going to take to come back, getting the state a better credit rating?

MCELROY: I think it's going to take quite a while. One of the problems is that it's rather apparent that some of the game that's been played here is not long term solutions but simply accounting games. They've done things like putting off the payroll that would normally come out on June 30th, 2010 and moving it back to July 1st, 2010, which takes that payroll out of this year's budget. To any observer, you look at that and you'll say, gee, you know, this is really a game. They have, by one day, moved that expenditure of a substantial amount of money out of this year's budget and achieved a solution by doing that. And Wall Street's going to look at that. They're going to look at this rather skeptically, I think, and it's going to make Bill Lockyer's job a lot tougher trying to get decent deals without ruinous interest rates.

CAVANAUGH: And I'm wonder – It just occurs to me as you mentioned that because I did read a little about the shifting the money around on the books, which is part of this $26 billion deal, isn't, Leo, that the kind of thing that voters rejected in the last special election we had?

MCELROY: Voters really didn't like the entire package that was handed to them and that was part of it. Part of it, though, I think, according to the polls was simply the perception that the legislature had failed to come up with a solution at all and was passing it on to the voters to make a decision. And there are polls that suggest the major message out of that election was to send it back and say do your job, don't come to us. Well, it may have been done that way this time around but the result's still going to fall on the public and the public's going to look at what impact this has on their lives. And, as Kevin says, you know, it hits a lot of people. It's going to hit everything from college students to the people who get more potholes in their roads to people who are disabled and rely on in-home services.

CAVANAUGH: Exactly. I want to let our listeners know that they're invited to join the conversation. If you have a question about this proposed budget deal, what it may mean to San Diego, what it may mean to you, give us a call at 1-888-895-5727, that's 1-888-895-KPBS. Now I'm going to ask you both, what happens next? What happens in the next couple of days, Kevin, that leads up to this vote that they're supposed to have on Thursday? What kind of discussions are going to be going on at the state legislature?

YAMAMURA: Oh, it's going to be – probably some difficult discussions but the leaders, as we said, were – had been meeting private – the four legislative leaders and the governor have been meeting in private behind closed doors for weeks. And most legislators, even some, you know, who are in leadership we've talked to over the last few days, we asked them about parts of the budget that we were hearing about and they said, I don't know, you know more than – you may know more than I do. And so a lot of rank and file legislators have not been updated extensively yet on what this budget plan contains. The leaders are saying they're going to meet with their caucuses today, tomorrow, go over the plan for a vote on Thursday of the full legislature. And there are some speculation that, you know, some of the rank and file members may not like various parts of the legislation. I mean, I know, for instance, the Assemblymen in Santa Barbara does not like the fact that there's an oil drilling lease, offshore oil drilling lease off the coast of Santa Barbara.

CAVANAUGH: And, Leo, what does it mean to meet with the caucuses? I mean, what – are these special interest groups within the legislature?

MCELROY: No, these are people who are sensitive to special interest groups.

CAVANAUGH: Yes.

MCELROY: I will tell you right now if I open my window that faces toward the Capitol, I can hear the sound of arms being twisted. It really is the situation. There is great unhappiness in both caucuses. This is going to be an unpopular budget. It's a budget that they're going to get yelled at. If you're a Democrat, you're going to get yelled at by everything from the disabled right groups to the environmental groups who don't like the oil drilling deal to the law enforcement people who are yelling at both sides because they think there may be releases from prison. And if you're a Republican, you're also probably going to be unhappy that the rainy day fund wound up being a couple of billion less than Republicans had insisted on. Right now, there is, in both caucuses, a substantial amount of discussion about how unpopular they're going to be voting for this budget and what their responsibilities are. I've had several Democrats who have said we should not put up one vote for this budget unless every Republican gets on record voting yes, and until that happens there shouldn't be one Democratic vote provided for it. That's not going to be the case and it's not going to happen that way but every Democrat who defects means one more Republican has to vote for it. And, remember, this is the two Republican leaders who made this deal came into office over the bodies of the last two Republican leaders who supported the last budget deal.

CAVANAUGH: That quote that you're hearing from the Democrats, that they want all the Republicans on board, does that give us an idea of how painful they think this budget is going to be for California?

MCELROY: I think absolutely. I – There is a lot of feeling that I've heard from Democrats I've talked to who are, you know, openly saying we gave away the farm on this deal. We did not go for the sin taxes that we wanted, we did not go for the gasoline tax, we didn't go for tobacco tax, we didn't go for a nickel-a-drink tax, we didn't go for an oil severance tax. We didn't get any of those things. We took cuts to core programs that are important to our constituencies. We gave away the farm and we resent it. And there is going to be a great potential here for members of both caucuses to tell their leaders they're not happy with the way this deal came down and express enough dissatisfaction that rounding up the votes is going to be difficult. The only countervailing thing, the one thing that makes a difference is this is the month they're supposed to go on vacations and their families are screaming what do you mean we're not going to Hawaii?

CAVANAUGH: I'm speaking with Leo McElroy and Kevin Yamamura and we were talking – we are talking about the budget deal reached by lawmakers in Sacramento, still has to be voted on to shore up California's $26 billion budget deficit. And we are taking your calls at 1-888-895-5727. On the line with us, happy to say, Lori Saldana, California Assemblywoman, representing the 76th District. And Assemblywoman Saldana, welcome to These Days.

LORI SALDANA (Assemblywoman, State of California Legislature): Good morning. Well, thank you. It's always an interesting discussion. I do want to say, though, I promise you none of us are on vacation. We are not far from the Capitol and in less than an hour we'll be on a conference call, at least the Democratic caucus will be on a conference call with the Speaker to discuss more in detail just what is being proposed in this budget.

CAVANAUGH: I wonder, what is your feeling about the likelihood that this deal is actually going to get two-thirds approval from the legislature?

SALDANA: Well, I want to back up. I know hindsight's always twenty-twenty but the fact is that we had nearly unanimous support for a budget proposal before the June 30 deadline in the Assembly, and I'm talking about Democrats and Republicans, and where it stalled was in the Senate side. And if we had done that before the June 30 deadline, we would not be facing the additional billions of dollars in education costs that are now going to have to be managed. So when people talk about gridlock, I just want to remind people that the Assembly had a 70 plus—I don't think it was completely unanimous but there were no opposing votes on a deal a few weeks ago. And so the frustration really is in a few, frankly, Republican Senators that held the budget up and here we are weeks later, junk bond ratings, billions more in debt, and IOUs. So it is extremely frustrating when so few people can control the economics of millions of Californians.

CAVANAUGH: I know that this budget deal is really rather fresh but I'm wondering, have you done any calculations on how much of that $4 billion is going to be taken from San Diego's budget? San Diego County and City?

SALDANA: I haven't seen the latest estimates. You're talking about the 1-A, the borrowing proposal…

CAVANAUGH: Yes.

SALDANA: …and I have yet to see the final numbers. We did have Mayor Sanders and other mayors in Sacramento a few weeks ago. They changed their tune. They decided they'd rather have the money borrowed and with the promise of being paid back than to take money from transit funds, which would not be paid back. So everyone is taking very difficult choices here, and I just want to assure people that the State of California is, you know, we have waste, fraud and abuse. The fact is, we are managing, again, nearly 40 million people's cares and needs and the revenues are just not there. And it's the same in every level from individual households on up to the federal government. So this is an extremely difficult time. I know it pushes to cut education and healthcare for our poorest families will – nobody will want to vote for those. But, you know, the money is just not there.

CAVANAUGH: Well, I want to thank you so much for calling in. That was Lori Saldana, Assemblywoman representing the 76th District here in San Diego. Kevin, I wonder, do we know how much it costs the state to go without a budget deal every day?

YAMAMURA: Well, the figure that's been used around here has been $25 million a day but that – the Department of Finance cautions that that's not exactly accurate. It's hard to say that even though the governor had a debt clock at one point last year, it's hard to say there's actually a sort of a pace at which we lose money but because the state makes different payments, lump sum payments at different times, so – but the figure that has been used around here has been $25 million a day.

CAVANAUGH: $25 million a day…

YAMAMURA: It's an average that – which was basically an average if you take all the payments the state has to make perhaps in the month of July and average it out by the number of days, then…

CAVANAUGH: Yeah. Doug is in La Jolla. Good morning, Doug. Welcome to These Days.

DOUG (Caller, La Jolla): Hey, there. Thank you very much for taking my call.

CAVANAUGH: Yes, thank you for calling.

DOUG: The one thing that I think that a lot of people didn't get especially at the vote is that for the proposals last year that were so soundly voted down for the budget, is that this is really going to hit the recovery in California tremendously. A lot of state employees receive massive pay cuts with the furloughs. The state is not – is putting off construction and, you know, with teachers losing their jobs and everything, what we're going to see is the housing prices here continue and just the economy still to get hammered by this reduction in state spending.

CAVANAUGH: Well, thank you…

DOUG: And I think a lot of people underestimate just the effect that's going to have on the whole state economy.

CAVANAUGH: Thank you for that call, Doug. Leo, is this kind of a budget deal counterproductive for California's recovery?

MCELROY: I have to tell you there's a lot of praying going on and the praying is that the federal subvention funds in the stimulus package will help make up the difference on a number of these items that Doug cited. There's a lot of hope that the federal funding flow will continue and that some threats from the feds that say if you cut that program, we will cut off your stimulus money, that those threats do not occur. The federal help really is seen as being a major plus for education, specifically.

CAVANAUGH: Let's go to the phones again. Mike is in San Diego. Oh, sorry Mike. Okay, well, let me ask you guys, then. Let's go back to you. Do you get the sense hearing Assemblywoman Saldana speak, Leo, that this whole process has been very frustrating for state lawmakers?

MCELROY: I think this has been a killer for both sides. I think all sides have looked at it as very difficult. The one thing that Assemblywoman Saldana cited was the one moment when the legislature, at least one branch of it, one chamber of it, got its act together actually on a very bipartisan vote without dissent, hammered out a package of bills that at least would have made some difference with regard to the size of the deficit. It was a bookkeeping maneuver in large part but it would have made a difference and that was stalled in the Senate but it was stalled in the Senate at the inception of the governor who essentially, from all reports, put the arm on the Republican Senators and said do not pass this thing, I will veto it anyway if you do, so don't vote for it and stalled the measure that had come out of one chamber unanimously.

CAVANAUGH: Sheri's on the line calling from San Diego. Hi, Sheri, and welcome to These Days.

SHERI (Caller, San Diego): Hi. Thanks for taking my call. I just wanted to throw in two cents to say when we've all been so used to living way beyond our means, no one wants to take the cuts that are required. And I just wonder when the people are going to wake up and accept that we have to cut back? We can't keep spending more than we have available. That's all.

CAVANAUGH: Well, thank you for that call, Sheri, and actually Sheri is asking a question very similar to the one that I wanted to ask you, Leo, and that is, you know, people have been hearing about this budget mess in Sacramento, it seems it just goes on and on and on. But if this plan is approved and these deep cuts go into affect, do you think Californians are really – are we going to start really feeling the pain?

MCELROY: Yes. You're going to feel it at the local level substantially. You are going to see a slower response time probably to fire alarms and very probably a different prioritization on response to police alerts. You're already feeling that but it's going to be more intense. You're going to see road maintenance be less substantial. And you're going to see a lot of people who, according to the polls, really would have supported what are called sin taxes. You run the polls and you find out that the public says, hey, tax alcohol, tax tobacco, maybe even—taking an old S.I. Hayakawa idea—increase the tax on gasoline and what you do is, you reduce the incidence of those things but you also raise the state some money so you don't have to cut services so badly. Those were forbidden solutions here because the Republicans wouldn't give them one vote, so those aren't going to happen and the cuts are.

CAVANAUGH: Kevin, one last question to you, if I may, what happens now? What – Is this vote set for Thursday?

YAMAMURA: The vote's set for Thursday and if they get the votes then presumably the governor will then sign it and the Controller will look at this and hopefully end the IOU situation.

CAVANAUGH: Okay, so it all rests on what happens on Thursday then. I want to thank you both so much for talking with me. Kevin Yamamura, senior writer for the Sacramento Bee's Capitol Bureau. Thanks, Kevin.

YAMAMURA: Thanks, Maureen.

CAVANAUGH: Hey, great to talk to you, Leo.

MCELROY: You bet.

CAVANAUGH: Leo McElroy, nonpartisan Sacramento political consultant and contributor to Morning Edition here on KPBS. I want to let you know that you can continue this discussion online. We want to encourage you to post your comments at KPBS.org/TheseDays. And These Days continues here on KPBS in just a moment.