Assembly Passes Fiscal Plan

The California Assembly overwhelmingly endorsed a plan Thursday that would ask voters to approve a $15-billion deficit reduction bond and a constitutional spending limit to end a cycle of shortfalls that have crippled the state’s credit standing.

Members voted 65 to 13 for the bond measure and 80 to 0 for the spending limit, paving the way for a crucial Senate decision on the items today.

The Assembly actions were bipartisan, even though throughout the day some Republican members expressed doubt that the proposals would do enough to curb what they viewed as a legacy of runaway spending.

The spending limit does not include the strict cap that they and Republican Gov. Arnold Schwarzenegger had originally sought.

But Schwarzenegger was pleased by the outcome, which brought him a significant step closer to accomplishing one of his most challenging campaign pledges: to start putting the state’s fiscal house in order.

“By approving my California recovery plan tonight,” the governor said in a statement, “the Assembly has taken the first step to put California back on sound financial footing. I commend them, Democrats and Republicans, for putting aside ‘politics as usual’ and working together with me to craft a plan that includes a balanced budget requirement to prevent us from facing such a disastrous fiscal crisis again.”

The overall plan was a compromise hammered out between Schwarzenegger and Democratic lawmakers after a sharply divided Legislature failed to reach agreement last Friday. For that reason, Thursday’s votes delivered a political victory to Democrats too, and dealt a setback to Republican leaders who had fought hard for greater spending restrictions.

In the end, however, GOP members recognized that the measures had too much momentum. On the spending limit, four members initially voted “no” and four others abstained. All, including one Democrat, later changed their votes to make it unanimous.

“This was a remarkable vote,” said Assemblyman Keith Richman (R-Northridge), who spent months working on a bipartisan spending limit bill that provided some of the inspiration for the agreement. “It’s the first time since I’ve been here that the partisanship dissolved to a good compromise solution.”

Even as they voted for the plan, some Republicans warned that it did not go far enough.

“Let’s not overstate what we are doing here,” said Assemblyman Ray Haynes (R-Murrieta). “We are not stopping future problems. We may be planting the seeds of future problems. But in the end, what we are doing is better than what we have.”

Democrats expressed hope for more such bipartisan dealings with the Schwarzenegger administration.

“We listened to each other, and we hashed it out,” said Assemblywoman Jenny Oropeza (D-Long Beach). “We negotiated side by side. If this is a sign of things to come, California has a bright future ahead of it.”

The compromise had been negotiated late into the night Wednesday and was still under revision until shortly before the vote. If approved in the Senate -- and passage there is expected -- the two measures will be given to the California secretary of state to be placed on the March 2 primary election ballot.

Voter approval of the bond issue would overcome the legal argument that a conservative group had used to tie up $10.7 billion in borrowing that lawmakers approved last summer to balance this year’s budget. That borrowing would be replaced by the new bond offering, to be paid back over eight to 13 years.

However, the $15-billion bond issue and the spending-limit measure are joined, so if voters reject either one, both will fail to become law.

Schwarzenegger had sought a cap to rein in lawmakers he characterized as “overspending addicts” during his campaign to oust his Democratic predecessor, former Gov. Gray Davis. Originally, Schwarzenegger had hoped to limit annual state spending to $72 billion -- a 16% cut from the current level -- and allow that level to rise or fall each year based on a formula tied to population and per capita income.

Democrats argued that such a strict cap would devastate schools, health care and programs that aid the disabled and elderly, even in years when state revenue surged.

For two weeks legislative leaders of both parties had been negotiating with the governor, but by Monday most of the give and take was between Schwarzenegger, Assembly Speaker Herb Wesson (D-Culver City) and their staffs.

The compromise they struck would ban the Legislature from borrowing money to balance the state budget. Such a constitutional requirement would force lawmakers to adjust spending each year to match revenues. But the deal would allow them to increase spending in years when the state’s coffers were flush.

The agreement would also create a reserve fund to help balance the budget in tough economic times.

The reserve would be started by diverting 1% of state revenue into a special pool starting in 2006. The percentage would rise to 2% in 2007 and 3% by 2008, where it would stay until the pool totaled 5% of the budget, or $8 billion, whichever was greater. At that point, the reserve diversion would be suspended until the pool fell below that level.

A deal appeared dead last Friday, the original deadline set by Secretary of State Kevin Shelley to get measures approved in time for the March ballot. The Assembly worked nearly to midnight without passing either Schwarzenegger’s plan or a Democratic alternative.

But talks revived Monday after a group of 19 lawmakers -- liberals, conservatives and moderates -- asked Shelley to extend the deadline. The group was led by Assemblymen Joe Canciamilla (D-Pittsburg) and Richman, who had drafted their own version of a constitutional spending limit.

Although their bill died in an Assembly committee Friday night, many of its elements were adopted in the Schwarzenegger-Wesson compromise.

“I think [that] as of Friday no one wanted an agreement,” Canciamilla said. “Each group had a motivation for not having an agreement. What we did was force them to get back together. And after a weekend of calming down, at least some parties decided that they wanted an agreement.”

The four Assembly members who initially abstained on the spending limit were Democrat Ellen Corbett of San Leandro and three Republicans: Patricia Bates of Laguna Niguel, Bonnie Garcia of Cathedral City and Ken Maddox of Garden Grove.

Four other Republicans quickly reversed their “no” votes on the spending limit. They were Assemblymen Haynes, Tony Strickland of Moorpark, John Campbell of Irvine and Abel Maldonado of Santa Maria. Strickland said no one pressured him to change his vote.

“I talked to some other members about why they voted aye rather than no,” he said, “and they made some compelling arguments. It wasn’t a clear-cut vote for me, but I think my vote was the right one.”

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(BEGIN TEXT OF INFOBOX)

Budget evolution

How financial recovery plans compare:

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Impact: Spending limit

Original Schwarzenegger proposal: A cap would let spending rise or fall according to population and per capita income. Critics said that would disregard new revenue received via tax increases or an improved economy.

Original Democratic proposal: No cap. Critics said that would do little to tighten spending.

Final deal: No cap. But lawmakers would be prohibited from borrowing to balance the budget when spending exceeds revenues.

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Impact: Reserve account

Original Schwarzenegger proposal: All revenues above the spending cap would go into reserve. The money could be used only for tax rebates, to pay off bonds, in the event the budget falls out of balance or if the governor declares an emergency. No limit on how large the reserve could grow.

Original Democratic proposal: In good years, if the state had a surplus, that money would go into a reserve until it equaled 5% of the budget. Lawmakers would be free to use reserve money in years the state is not running a surplus.

Final deal: Starting in 2006, 1% of all revenues would go into a reserve. By 2008, the contribution would grow to 3%, where it would stay until the reserve reaches 5% of the budget or $8 billion, whichever is greater. Reserves could be tapped only for bond payments or if the governor and two-thirds of the Legislature agree that a fiscal emergency exists.

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Impact: Impact on education

Original Schwarzenegger proposal: Local schools and community colleges would have to give up $3.5 billion over the next two years. Critics said it also would reduce annual funding by $2 billion per year.

Original Democratic proposal: No impact.

Final deal: No impact.

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Impact: Power to correct deficits

Original Schwarzenegger proposal: The governor would have broad authority to change laws if the state starts running a deficit unless the Legislature adopts an alternative by a two-thirds vote within a month.

Original Democratic proposal: If the governor declares a fiscal emergency, the Legislature has 45 days to pass a plan that would correct it. A simple majority vote would be required.

Final deal: The governor could declare a fiscal emergency and present a remedy to the Legislature. Lawmakers would not be allowed to recess until they enact that or an alternative plan with a simple majority vote -- or a two-thirds majority if the plan includes new taxes.

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Sources: Dept. of Finance, Assembly Republican Caucus, Assembly Democratic Caucus, Legislative Analyst’s Office.