Accord Ends State Budget Stalemate

Ending their weeks-long standoff over the state budget, Gov. Arnold Schwarzenegger and legislative leaders emerged from private meetings Tuesday to announce that they had agreed on a no-new-taxes spending plan.

Though both sides cast the agreement as a sign of new cooperation, it is expected to be an uneasy truce as they negotiate a series of contentious issues that will come before voters Nov. 8.

At that time, Schwarzenegger and the majority Democrats will square off over special election initiatives that could shift power in the Capitol by imposing a budgetary spending cap, restricting the way labor doles out campaign contributions and removing the Legislature’s ability to draw its own voting districts.

The governor said he was eager to direct his energies toward the fall ballot.

The final budget deal closely resembles a compromise that majority Democrats offered nearly three weeks ago, after they dropped their fight for new taxes and $3 billion that local schools said they were owed.

The key difference is that it includes an agreement to pay down all of a $1.3-billion loan owed to local governments in the fiscal year that ends next June, instead of a year later. That provision came in response to threats by Republican lawmakers to continue blocking the budget unless it erased more of the state’s future debt.

“This is a terrific budget,” Schwarzenegger said as he emerged from more than 12 hours of start-and-stop negotiations over the Fourth of July weekend. “It’s a budget that pays down our debt, and it doesn’t raise taxes.”

Schwarzenegger expressed hope that the agreement, which is expected to total about $117 billion after final tabulations, was a sign that Republicans and Democrats could work together to reach a compromise on issues that will appear before voters in November.

“We have gained some tremendous momentum here,” Schwarzenegger said. “I think we should use that momentum.”

Members of the full Assembly and Senate will vote on the spending plan starting Thursday, legislative leaders said. The agreement between top leaders, however, usually indicates that passage is likely.

Assembly Speaker Fabian Nunez (D-Los Angeles) said the budget agreement mirrored the values of both Democrats and Republicans.

“Today’s actions are a reflection that we are back on track and we are going to start working together in the spirit of cooperation,” he said.

If lawmakers agree on the budget by a two-thirds vote in each house, it will go to Schwarzenegger for signing. Once the governor acts, state officials will resume millions of dollars in payments to local schools, community colleges and state vendors that were frozen at the start of the fiscal year Friday.

For a while, putting a budget together looked as if it would be a much easier task than in recent years, when the state’s deficit had swelled to as much as $30 billion. Over the last six months, the budget shortfall for the fiscal year shrank from $8.6 billion to $6 billion, as revenue from capital gains and corporate and other taxes surged thanks to an uptick in the economy. A tax amnesty program brought in a couple of billion dollars more, some of which was used to shrink the shortfall further.

But when the governor sought to link agreement on a budget with a compromise that would have embraced some of the November ballot issues, negotiations hit an impasse.

A prolonged budget stalemate then threatened to pull down the already dismal public approval ratings of lawmakers and the governor in public polls. A recent Field Poll revealed that 59% of registered voters believed that California was heading in the wrong direction.

The governor and lawmakers eventually agreed to pass the budget and then resume negotiations on a compromise over the issues that will come before voters in November. They include measures that would curb spending, lengthen the time for teachers to earn tenure and remove the Legislature from the drawing of voting boundaries.

If any compromises are reached, the Legislature will place them on the ballot alongside the original measures. Under such a scenario, the governor would abandon the original initiatives and campaign with Democrats for the compromise package.

But it was the hope of beating the governor in the special election that led Democrats to fold on most of their budget demands.

They worried that holding out for higher taxes would have played into the governor’s hands by building public support for the linchpin of his agenda: a ballot measure that would limit how much the state budget could increase each year and allow the governor to cut programs of his choosing whenever the budget falls out of balance midyear.

So Democrats agreed to a budget that lacks about $3 billion that schools said the governor had promised them as part of a deal to help balance last year’s budget.

The move was made with the support of the politically powerful California Teachers Assn., which also decided that beating the governor in November was more important than getting the money this year, as the spending restraints he supports could cost schools many billions of dollars more.

Republicans, however, refused to support the budget proposal for weeks because of other Democratic revisions. They said it pushed too many debts into the future, leaving the state with a projected deficit of more than $5 billion by fiscal 2006-07.

They demanded that Democrats cut by a third the wages the state pays to paid to home-care workers for the disabled, eliminate the state’s contribution to the teachers’ retirement fund and reduce the overall government payroll by $408 million.

They continued to make the demands despite warnings from budget analysts that binding contracts with public employee unions prevented the state from cutting the government payroll by anything close to that amount and that schools would be guaranteed the money being used for teacher retirements under the state Constitution.

Most of those cuts were ultimately abandoned.

The home-care worker salaries will remain the same. And the government payroll will be reduced by just $40 million.

“We decided to be very careful,” administration Finance Director Tom Campbell said of the payroll. He said the administration would try to achieve those savings through contract negotiations with unions, but ultimately decided, “Let’s not book it until we get it.”

The repayment of the local government loan was the GOP’s big reward for holding out.

Yet the budget deal announced Tuesday is still in many ways a victory for the governor. It is a spending plan that mirrors his own draft budget, and it is on track to be in place only a week or so late.

“We are five days into the fiscal year and we have a budget,” Campbell said. “That is one of the earliest we have done.”

In addition to avoiding tax hikes and limiting the increase in school spending, the proposed budget would also:

* Restore $1.3 billion in transportation spending to jump-start stalled road projects throughout the state. The money to do this came from a windfall that arrived in state coffers thanks to the improved economy.

* Suspend cost-of-living increases for some welfare recipients for two years.

* Increase fees at state universities as much as 10%.

* Increase court-filing fees.

* Move some patients who receive state subsidized healthcare into HMOs.

* Add training programs to address the state’s nursing shortage.

Despite the political fights that loom over the November ballot, budget negotiations remained uncharacteristically calm this year. Former Senate President Pro Tem John Burton was known to routinely storm out of the meetings after obscenity-laden rants directed at the governor or Republican lawmakers.

There was so little of that this year that the current Senate leader, Don Perata (D-Oakland), remarked dryly that it was a bit of a letdown.

“From what I heard it used to be like,” he said, “it was rather disappointing.”

*

(BEGIN TEXT OF INFOBOX)

Key points

Highlights of the roughly $117-billion spending plan:

* Increases education funding from kindergarten through community college by nearly $3 billion.

* Pays back $1.2 billion owed to cities and counties.

* Puts $1.3 billion in gas taxes into California’s roads and transportation system.

* Contains no new taxes and no new borrowing.

Source: Governor’s Office