Tuesday, September 16, 2008

State budget nearing approval -- or is it?

SACRAMENTO — State legislators met late into the night Monday to end California's record budget impasse with a plan that would cut spending but also use accounting maneuvers to close an estimated $15.2 billion deficit.

Democratic and Republican legislative leaders announced the budget accord Sunday and moved to put it up for a vote barely a day later, denying interest groups time to mobilize against it. Still, as of Monday evening, Republican Gov. Arnold Schwarzenegger had yet to get on board, threatening to veto the plan unless lawmakers added stronger reforms designed to stave off fiscal crises in the future.

Schwarzenegger was demanding a larger rainy-day reserve and stiffer rules for withdrawing money from it. Without them "the rainy-day fund turns into nothing more than a slush fund that can be raided at any point," the governor's communications director, Matt David, said in a statement.

The veto threat injected a dose of uncertainty into a two-day sprint by legislators to approve the plan.

The proposal would be a coup for Republican legislators. Even though they're firmly in the minority, GOP leaders used a requirement that budgets pass by a two-thirds margin to their full advantage, blocking a variety of tax increases proposed by Democrats and the governor. The alternative was a grab bag of accounting moves that papered over this year's deficit but could lead the state back into the same predicament in a few months.

Several AdvertisementDemocrats criticized the deal to pass the budget, now a record 78 days overdue, even as they prepared to back it.

"I'm holding my nose to vote for this," said Sen. Elaine Alquist, D-San Jose. "The bottom line is it's a bad budget, but my constituents are clamoring for a budget. This is called tyranny of the minority."

Republicans said the plan validated their stand against raising taxes, which they said would delay an economic recovery and burden families stretching to make ends meet.

The proposal avoided some of the more severe cuts to education, health care programs, and social services that many had feared. But advocates for those programs were hardly relieved, saying that the proposal's effort to mask the deficit would only invite even deeper cuts next year and beyond.

"They basically punted the ball down the field," said Mike Herald of the Western Center on Law and Poverty, "and delayed all the pain and anxiety until next year rather than deal with it now."

The proposal would actually bump total spending from the last fiscal year by just less than $1 billion, to $104.3 billion. But state officials say it represents a cut of about $6 billion from what the budget would have totaled due to inflation and enrollment growth.

Of the total gap, about half will be closed through cuts and half through revenues. But a big chunk of the revenues is "one-time" money, meaning the state would have to pay for the gimmicks later.

One provision would generate almost $2 billion by counting revenue expected in the next fiscal year this year instead. Another would "raise" $1.6 billion by boosting paycheck withholdings from workers early in the year, even though workers would receive the money later in their tax refund. The plan would accelerate various other tax payments from corporations and the wealthy for another $2.3 billion.

The plan also embraces an idea, first pitched by Schwarzenegger, to "securitize" the state lottery — essentially collecting $10 billion from investors in the next two years, and then paying it back with lottery proceeds in the following 30 years. The money would be used to pay down debt.

The lottery plan and reforms to the budget process would have to be approved by voters, possibly in a special election next year.

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