Senate vote brings end to California budget impasse

Shortly after sunrise Friday, state lawmakers brought California’s longest-ever budget impasse to a close – but not before stuffing their spending plan with last-minute favors for special interests.

Lawmakers had worked through the night to move the budget package of more than two-dozen bills to the governor’s desk. At 8:25 a.m., the state Senate passed the final piece of the spending plan. The vote came exactly three hours after the lower house approved the package.

“Hey, it’s daylight,” state Sen. Christine Kehoe (D-San Diego) said as the final round of voting began, more than 20 hours after the marathon session had begun.

Assembly Speaker John A. Perez (D-Los Angeles) said in a statement that lawmakers had approved “a solid and sober budget for the people of California” on Day 100 of the fiscal year.

“Now let’s be clear, this is not a perfect budget,” Perez said. “In the era of the Great Recession, there is no such thing as a perfect budget.”

Schwarzenegger is expected to sign the plan soon after he receives it from the Legislature. He has the authority to line-item veto spending legislators have approved.

As the final votes on the budget loomed, legislators were engaged in a furious round of horse trading, according to lawmakers and staff involved in the deal-making. As legislative leaders rounded up votes, they added provisions that would boost the bottom lines of online travel companies and an ethanol firm founded by a close ally of the governor. They drafted language that could allow the city of San Diego to use more redevelopment money to facilitate a new NFL stadium for the Chargers.

Democrats in the state Senate pushed legislation to address an element of alleged corruption in Bell, where the city was reported to be making money by towing the cars of sober immigrants from DUI checkpoints if they did not have proper ID. The proposed law change would prohibit that practice, but died in the wee hours Friday morning.

“This is the money that fueled their corruption,” said Sen. Mark Leno (D-San Francisco).

Not all the special provisions would survive the night. But the flurry of deal-making delayed passage of the bipartisan $87.5 billion general fund plan, the foundation of an overall $125.3 billion budget that would avoid broad new taxes and deep program cuts by pushing the bulk of the deficit into next year.

The package had mushroomed by early Friday morning into more than two-dozen separate bills, which were brought up in fits and starts in between negotiations on the last-minute proposals.

“Everything in the budget is give-and-take,” said Senate Leader Darrell Steinberg (D-Sacramento).

Before Thursday, legislative leaders and the governor had already signed off on tax breaks that activists said amounted to giveaways for a timber company, cable companies and software firms. Those proposals, along with the one that would benefit online travel companies by changing a tax calculation, were drafted at the insistence of Republicans. GOP members are a minority in the Legislature, but some of their votes are needed to pass a budget, which requires two-thirds approval.

The core budget bills were made available to lawmakers only hours before scheduled votes, and some legislators expressed frustration that they were not able to sort out all the details of the bills.

“I simply can’t vote under these circumstances,” said Assemblywoman Diane Harkey (R-Dana Point).

The last-minute legislation to benefit travel websites such as Orbitz, Travelocity and Expedia fell short amid the scrambling. GOP lawmakers were championing their bid for a tax break; cities and counties were warning that such a move would deny local governments tens of millions of dollars in hotel taxes each year.

The travel companies had sought to change how a levy called the Transient Occupancy Tax is calculated. Instead of a tax on the full amount they charge a customer for a hotel room, the online companies would pay tax only on the amount they pay the hotel for the room – typically much less than what they charge the customer.

On Thursday, according to lobbying memos obtained by The Times, the websites were directing a behind-closed-doors lobbying effort to slip a measure “clarifying the law” in their favor into a budget bill authored by Senate Republican leader Dennis Hollingsworth of Murrieta.

“This would rob local cities of millions of dollars of tax revenue and line the pockets of online companies at taxpayer expense,” said attorney Raymond Boucher, whose firm represents Los Angeles, Long Beach and other California cities.

Lawmakers did approve a budget provision that was being extracted for a struggling business founded by former Secretary of State Bill Jones, a political ally of and generous campaign contributor to Gov. Arnold Schwarzenegger.

Jones’ firm, Pacific Ethanol would be relieved of a requirement to meet strict environmental standards by the change quietly inserted into budget legislation Wednesday.

According to state energy officials, the requirements are part of a deal in which the company agreed to secure millions of dollars in government subsidies that helped rescue it from bankruptcy. They call for the firm, which uses corn to make the gasoline additive ethanol, to significantly reduce its carbon footprint within four years.

But a last-minute change to the statute allows the carbon reduction requirement to expire in two years, essentially letting Pacific Ethanol, and three smaller firms that qualify for the subsidy, off the hook. Administration officials said the change was the idea of Assembly Democrats.

Shannon Murphy, spokeswoman for Assembly Speaker John Pérez (D-Los Angeles), said, “I can tell you emphatically that any assertion this was the speaker’s idea is laughable.” She added that whenever the speaker’s office got calls about the subject, they “came from the administration.”

Both the Assembly and Senate approved another last-minute proposal to allow the City of San Diego to fast-track some redevelopment spending.

Another last-minute proposal making the rounds would allow the City of San Diego to fast-track some redevelopment spending. The Assembly had approved the plan; it was pending in the state Senate.

The plan would defer many hard choices until the future and employ optimistic revenue assumptions and accounting maneuvers to paper over the deficit. It assumes, for example, that the state would receive billions more in federal assistance than most experts believe is realistic.

And the package includes $2 billion in internal borrowing—a mere shifting of funds that would have to be replenished later. In another accounting move, nearly $2 billion more in payments to schools and community colleges would be pushed into the next fiscal year.

Amid the gimmicks, lawmakers proposed some cuts in state spending. The budget would essentially freeze money for schools, suspending voter-approved funding guarantees. State buildings would be sold off and leased back. Workers in the state’s in-home care program would get modest pay cuts.

The state controller’s office has warned that even a budget signed this week may be too late to avoid issuing IOUs for the second year in a row. More than $8 billion in invoices that fell due during the months-long standoff must be paid as soon as the budget is signed. That would plunge the state into the red.

“This is a budget that reflects the compromises necessary to find a two-thirds majority,” said Perez. “This is most glaringly obvious in the fact that it has taken us nearly 100 days.”

shane.goldmacher@latimes.com

jack.dolan@latimes.com

patrick.mcgreevy@latimes.com

Times staff writer Evan Halper contributed to this report.