Democrats Say Budget Talks Are Deadlocked

Legislative Democrats announced Thursday that state budget talks have reached an impasse that will probably delay any action until at least early next week.

Meanwhile, the state controller sent a letter to lawmakers warning them of the financial consequences if an agreement is not reached soon.

Budget talks remain bogged down over the issue of how to protect money for cities and counties. Democrats, who hold majorities in both legislative houses, are resisting a constitutional amendment supported by Republicans and local government leaders that would make it impossible to temporarily reduce future payments to cities and counties -- even in an emergency -- without support of four-fifths of the Legislature and the governor.

“We’re at an impasse,” said Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento). “If it takes three or four additional days to avoid a mistake that will last 10 or 20 years, then it is worthwhile.”

With negotiations stalled, Gov. Arnold Schwarzenegger announced he would be in Austria this weekend to attend the funeral of that country’s former president, Thomas Klestil, and lawmakers headed back to their districts for the weekend. Legislative leaders said they would continue negotiating with administration staff.

As news spread through the Capitol that it would be several days before even the framework of an agreement was reached, State Controller Steve Westly sent a letter to lawmakers warning of the consequences of delaying the governor’s $103-billion spending plan much longer. The state is now nine days into the new fiscal year.

Unlike last year, when California was faced with running out of cash in the summer, Westly said a $15-billion bond issue approved in March affords lawmakers some breathing room. But he told legislators that the state Constitution would prohibit him from making large payments to schools, colleges and universities if no budget is approved by July 28. And the state must immediately stop paying vendors for any of their work since the new budget year began July 1.

Partisan rancor in the Capitol continues to increase.

“The Democrats keep saying no to everything, even when they are common-sense ideas,” said Assembly Republican Leader Kevin McCarthy of Bakersfield. “I think from their standpoint, they think it is somewhat politically beneficial to hold up California’s budget.”

The deal the Republicans and local government leaders are pressuring Democrats to accept would allow the state to slash funds to cities and counties by $1.3 billion for each of the next two years in return for the protection against future cuts. Democrats say they are willing to support some future protection, but not as much as the cities are demanding.

Assembly Speaker Fabian Nunez (D-Los Angeles) said local governments “need to develop a greater appreciation for the concessions that have been made thus far.” Those include prohibiting the state from borrowing from local governments more than twice every 10 years and requiring that money be repaid within three years, Nunez said. But Democrats want to be able to borrow from the cities and counties with a two-thirds vote of the Legislature.

Concerned that the proposal being pushed by local governments gives cities and counties more protection than schools, the powerful education lobby has lined up against it and is pressuring Democrats not to move off their position. In a conference call on Thursday during which Nunez polled his 48-member caucus, only a handful said they would vote for the plan local governments have on the table, according to a lawmaker who was on the call.

“It looks awfully greedy,” said Kevin Gordon, executive director of the California Assn. of School Business Officials. “If education dollars can be suspended with a two-thirds vote, then I don’t think any other segment of government ought to be extended a protection greater than that. The local government folks should not ignore the very significant political factor of the education community. If they overreach, we will be there to remind voters of that fact.”

The cities and counties have been trying to use as leverage Proposition 65, a November initiative that would prohibit the state from ever touching local government money again -- and would force the state to give back any cuts it makes to help close this year’s $14-billion budget shortfall.

Yet Democrats say their polls show the proposition has little voter support, and Republican leaders conceded this week that the measure would probably fail.

“They may want to dismiss it but we think there is a lot of grass-roots power behind it,” said Los Angeles Mayor James K. Hahn. “Without a deal that is the only thing on the ballot for people to vote for.”

Hahn and other city leaders said they put their compromise proposal on the table this week, and now it is up to the Democrats to present an acceptable alternative.

“We have already moved off of our demand that under no circumstances would the state ever be able to look to local government for funding for help,” Hahn said. “That was a significant move. And one not popular with a lot of cities and counties.”

“We think the ball is in the Legislature’s court to respond to us comprehensively,” Hahn said.

Chris McKenzie, executive director of the League of California Cities, said his coalition would not come off its demand that any cutting of local government require a four-fifths vote of the Legislature until Democrats offer an alternative as part of a total package. He said it has not been easy to negotiate such a complicated deal with the budget deadline bearing down on everyone involved.

“It is difficult ... in this environment where there is so much pressure to come to a resolution and everybody is passing the latest rumor of what is going on,” he said.

Schwarzenegger spokesman Rob Stutzman said the administration is optimistic that middle ground can be reached.

“We’re pretty well convinced that we can get there,” he said.

*

Times staff writer Robert Salladay contributed to this report.