COLUMN ONE : Going for Broke on the Budget : What’s the real story behind a state that only knows how to say IOU? A hundred battles rage, including one over bed pads. Politicians play hide and seek with California’s 900 lobbyists.

It is just before noon on the 38th day of California’s record-breaking budget crisis and the six members of the Legislature’s conference committee are plowing through items with abandon--as if somehow in two hours on this morning they can compensate for five weeks of being stalemated.

Moving at more than $1 million a minute, the conferees close in on their target: a balanced, $58-billion budget that does not raise taxes and inflicts minimum damage on public schools. But still they are several hundred million dollars and a few votes short.

It’s time.

Time for the members to bear down and finish a budget for a state that’s gone from gilded to gelded, its economy, to hear the governor tell it, so weak after two years in the doldrums that no recovery is in sight. As usual, California leads the nation. But this time the state is first in futility--paying some of its bills with IOUs and stiffing thousands of honest merchants who have filled the government’s orders for everything from auto parts to pizzas and poultry.

From a distance, this budget battle seems nothing but a test of wills, a personal grudge match between a governor in his second year in office and an Assembly Speaker now in his second decade in power. Yet beneath that surface a hundred battles rage. Each legislator has particular demands, pulled and prodded by lobbyists representing the institutions, the corporations, the unions or the individuals who depend on the state or do business with it. And every one of them can find something not to like.

The goal today is to construct a budget that’s lobby-proof. But that may be too much to ask of any spending plan in a year as bleak as this one. Any idea of substance has a shelf life of maybe 48 hours before it’s smothered or nibbled to death. Deals are made and fall through. Nothing happens for days and then everything happens at once. There is secrecy and retribution, there are blind alleys and missed opportunities.

Now a compromise emerges.

The swarm of lobbyists who pack this room to advocate for causes and corporations fall silent. Some are already certain that they have succeeded in protecting the interests of those they are paid to represent. Others know they’ve failed. And dozens can only wait and wonder if their program or their contract or their people will be among the victims when, after 50 consecutive years of bigger budgets, the era of limits finally begins.

At the dais, beneath a huge, Depression-era mural depicting scenes from California’s glorious past, three members of the Assembly and three from the Senate race ahead. The chairman is Sen. Alfred E. Alquist, the oldest member of the Legislature, who at 84 may be a little hard of hearing but has not lost his ear for the music of politics. Holding the gavel is Assemblyman John Vasconcellos, the mop-topped leader of the new self-esteem movement, a feel-good kind of guy so sick of this budget that he no longer speaks, he growls. In a jargon that borders on code, they talk of TDAs and escheat, of super-pots and RDAs.

The big-ticket items have been agreed upon at some other time and place--a member’s office or a corridor behind the hearing room or the Capitol’s sixth-floor cafeteria or a bar down the street. You never know where a major decision is going to be made, except that it won’t be in public.

The schools lobby has consented to an $851-million hit--leaving public education enough to keep even with enrollment but short of keeping pace with the cost of living. Now the members construct a creative legalistic wall around the education budget so that Gov. Pete Wilson cannot use his line-item veto--the blue-pencil--to bring it down to his level. This Legislature, Vasconcellos grumbles under his breath, will not be “someone else’s lackey.”

Next come local governments. Counties thought they had an understanding with Speaker Willie Brown to cap their losses at $400 million. Now that deal is out the window, and the damage is nearly twice as bad. Dan Wall, the bearded bear of a man who lobbies for counties in the Capitol, tells reporters in a hallway that it can’t be done. Inside, the committee says it will be done.

The cities thought they had a deal too. Theirs was with Wilson--no cuts at all. But this is an end run around the governor; the cities will take their lumps as well. So will nearly every fire, water, sewer and library district in the state. They’re all losing a chunk of the tax money the Legislature shifted their way in 1979 to bail them out after the voters slashed property taxes with Proposition 13. Then the state had a $5-billion surplus. Now the cupboard’s bare and the state wants its money back. Everybody who thought government survived that landmark initiative without a scratch is in for a rude awakening.

Making the Plan Stick

With the big picture painted, now come the closers, the amazing ideas that arrive from nowhere when a few more pieces are needed to bridge the final gap.

Grab $37 million by taking a bigger share of the money wagered on state-regulated horse racing.

Take another $12 million from two agencies that regulate the energy industry--and hold hostage a big chunk of their budgets to force the panels to consider a merger that will save even more.

Get $106 million by more quickly selling off unclaimed assets in the state’s possession. The last time they tried this move--tinkering with the laws that govern the process known as escheat--one lawmaker called it “ripping off the dead.”

Whack $16 million from Wilson’s executive branch--the state bureaucracy.

Hit the courts for $35 million. Nine measures to reorganize the judiciary and raise additional revenue are adopted quickly. One result: Check bouncers would pay an extra $25 penalty if a sheriff’s investigation is involved.

Then a big one. Shift $150 million in sales tax revenue from local transit agencies to the state. The move, never debated before, is approved here without a word on how it might affect those who depend on public transportation. The transit lobbyists, who learn of the proposal only hours before it is voted on, watch helplessly as the committee raids the Transportation Development Act money, or, in shorthand, TDA.

The committee chalks up another $75 million, mostly from foreign-owned corporations, by making the state tax code conform with federal law. Just about everyone has sworn off tax increases this year, but this little bill is magic: it raises revenue without changing the rates.

That’s it. The budget is balanced. Yet still there’s more to do.

The conferees know that five of their six members will support this compromise. But once the plan hits the floors of the Senate and Assembly the lobbying will be furious. A simple majority vote is not enough; it takes two-thirds of the members to pass a budget. The conferees will need a head start on the governor--who opposes the deal--and whatever lobbyists might want to kill it.

Attention turns to Frank Hill, the young but experienced Republican senator from Whittier who crafted this compromise.

Hill seems an odd man to be at the heart of a move to salvage the Legislature’s image. His resume makes him the very model of what the voters are supposed to hate about the Capitol. Elected to the Assembly at 28 after a few years as a congressman’s aide, Hill is sort of a second-generation career politician, boosted into a seat in the Legislature by the man he served.

In the lower house, Hill hung out with the ideologically rigid right-wing group dubbed the “Cavemen.” Although insiders knew him to be more pragmatic than his conservative mates, he hid it well.

As an assemblyman, Hill was more of a fund-raising machine than anything else, scooping up thousands of dollars in donations while serving as vice chairman of the committee that oversees the gambling industry. His office was one of those raided by the FBI the night the cover broke on a federal sting. He accepted $2,500 for meeting with agents who posed as investors in a shrimp-processing plant who were seeking special favors from the Legislature. But four years later, Hill has not been charged with any crime and he thinks he’s in the clear. He moved to the Senate in 1990 after winning an ugly special election campaign.

Now Hill, facing reelection in a newly drawn district, has broken from his governor and is vigorously pushing rank-and-file lawmakers to ignore their leaders and piece together a budget of their own. Seeking to attract every possible vote when the budget fight shifts to the floors of the Assembly and Senate, he has a few suggestions for the committee.

Some conservative Republicans in the Assembly say that they might vote for the deal if money for family planning is frozen at last year’s level. It’s a $6-million cut from what the governor has proposed for state-subsidized birth control. Done.

A few others, Hill says, are leaning toward voting for the budget but would like to see the end of the Commission on the Status of Women. Gone.

A Republican senator is on the fence; he wants leniency for a school district in his area that is fighting with state auditors over $4 million. Resolved.

And so on.

All this and more is needed to protect this bill from the awaiting onslaught.

Onslaught of Lobbyists

Nearly 900 lobbyists are registered with the secretary of state to prowl the Capitol’s hallways. That means that on any given night in Sacramento seven lobbyists could be dining with each member of the Legislature--and still there would be 50 lobbyists eating alone.

But many advocates still lose track of the action. The flow shifts quickly, from the conference committee to the governor’s office to the legislative leadership.

“It’s like following the pea beneath the shell,” says lobbyist Robert J. Achermann, a Capitol veteran who represents an array of clients, ranging from the soft-drink industry to independent automobile dealers.

That frustration is intentional. Democrat Phillip Isenberg, the former legislative staffer and Sacramento mayor who represents the capital in the Assembly, says this year’s budget is like a game of hide and seek.

“Part of the art of being a lobbyist around here is to try to figure out where decisions are being made,” says Isenberg, who has no official role in the budget battle but always seems to be in the middle of it. “Part of the governmental process is to try to prevent lobbyists from figuring out where you’re making your decisions. Because as you try to make a decision, they spend all their time banging it down, and they don’t care about the consequences. All they care about is defeating this proposal for $3 million, that proposal for $150 million, getting this exemption for themselves for $70 million.

“They create this absolute commotion and frenzy. Members seem to think that lobbyists are representing real people. Some of them are. Most aren’t. They’re representing economic special interests who just want to cut a deal for themselves. They want to cut a fat hog.”

The interests run the gamut. There are people with their eye on a few hundred thousand dollars that they will defend to the death. And there are folks tracking the movement of billions to a single program.

Yachters are complaining about a pondered shift of boat fuel tax proceeds to the parks department at the expense of a fund that helps build marinas. Pesticide makers are fighting a plan to force them to pay fees to support the full cost of regulating their industry. Even ex-cons are represented: Parole officers, fearing layoffs, are raising a commotion about a move to allow nonviolent felons to go unsupervised at the conclusion of their prison sentences.

But it’s not always simple to tell where a special interest ends and a constituent begins. If you gouge a real estate developer, does the first-time home buyer also get the shaft? If you wipe out a saleswoman’s tax-deductible business lunch, what happens to the minimum-wage waiter who would have served that meal? Perhaps the most powerful special interest in town--at least at budget time--is the California Teachers Assn. Over the years the teachers have poured millions into campaigns--almost all of it for Democrats--and stand at the ready to send foot soldiers into battle for candidates in trouble.

When the governor made his first big push to cut school funding, even once-friendly lawmakers got the message from the CTA: cross us now and we’ll go after you in November. The teachers union was the driving force behind the television ads denouncing the governor for trying to block 110,000 4-year-olds from entering kindergarten on schedule in the fall. Wilson finally withdrew the proposal.

“The teachers have a tremendous amount of power and they wield it all the time,” Senate Republican Leader Ken Maddy says. “They’re unyielding.”

The teachers have exasperated Wilson, who keeps repeating, seemingly to deaf ears, that the schools are doing better in this budget than any other part of government. Wilson lost control of the debate when he let it slip that he planned to cut $2 billion from the $25 billion in state and local funds he proposed for schools in January. The actual cut from last year to next is about $200 million, harsh enough when 200,000 more students are pouring into classrooms across the state. But the teachers latched onto the bigger figure and won’t let go. Now they’re preparing a “grass-roots” effort to mobilize parents to defend the public schools. Who’s the special interest there? The teachers? The parents? The kids?

The education battle is on center stage, but dozens of smaller skirmishes dot the landscape and each must be resolved before there is a budget. A struggle between cities and counties has hungry siblings fighting over scraps. With the Proposition 13 bailout coming undone, each is hoping the other gets the worst of it. Cities are identified with police and fire services and they chant “public safety” as if it were a mantra. But municipal governments also do the bulk of land-use planning in this state, and developers and builders are pushing hard behind the scenes to keep the cities whole.

That has left Dan Wall, the county lobbyist, so desperate to defend health and welfare programs that he’s saying these liberal programs are crucial to the “business climate.” Wall often stands at the locked door outside the Assembly chamber, crammed into a narrow hallway with a dozen other lobbyists. As an Assembly debate blares from an overhead television, the lobbyists compete for a chance to grab members coming and going.

Striking a Deal

To persuade Democrats, Wall says, he appeals to their sympathy for the poor and needy. On Republicans he tries a different argument. He needs these pro-business lawmakers to picture more homeless people urinating on the sidewalks outside gleaming downtown office towers or panhandlers begging customers for change before a salesperson can get to them.

“We represent constituencies that are not popular,” Wall says. “We have to relate impacts to these people in terms that show them how it affects their pet interest.”

Few of the issues are as cosmic as society’s basic commitment to its neediest members. Consider the battle over bed pads, which in some respects is a microcosm of the broader budget war.

Seeking to avoid cuts headed their way, the medical equipment suppliers try a time-honored technique--suggesting a way to save the same amount of money by cutting elsewhere. They advocate eliminating the purchase of “premium underpads”--a high-quality mattress protector used by disabled people who have little or no control of their bodily functions. Wouldn’t regular bed pads, which are much cheaper, do as well?

But the folks who make the premium pads catch on. They argue that the state would lose in the long run--paying more for increased numbers of regular underpads and adult diapers if the premium product no longer were available. More important, they agree to slash their prices deeply.

“We saw the writing on the wall and it says we will go in right now and offer to get gored,” says lawyer Dennis Warren, “so when these budget cuts come down we’ll be in position of having shown real good faith and maybe we’ll be treated fairly.” They were.

The drug industry, which sells the state more than $1 billion a year in prescription medications for the poor on Medi-Cal, also finds itself a target of the budget ax. Under current law, the state bargains for volume discounts on its purchases; the drug companies give the discounts as rebates at the end of every year.

When the depth of the budget deficit became clear, an assemblyman proposed a way to save even more money: Allow the health department to negotiate with the manufacturer of each class of drug, then contract with the one that offers the biggest rebate. The losers would be shut out of the business. Fearing this proposal, the drug companies offer all sorts of alternatives, including one that simply would require the manufacturers to give the state a 10% discount off the lowest price they’ve negotiated with the federal government. But their creativity backfires. In the end, the budget-writers take a combination of all the offers.

Risks of Fighting Back

If the alternatives fail, another useful tactic for any target of the budget ax is to argue that what is threatened is illegal. That’s what the state’s water wholesalers did when they woke up one morning and learned the conference committee had slashed $150 million from the State Water Project, which carries water from Northern California to parched farms and homes in the south.

Raymond Corley, lobbyist for the powerful Metropolitan Water District, wasn’t even monitoring the committee in June when they pulled that one out of the hat. But he quickly regrouped to fight the proposal, which would have meant hefty rate increases for the Southland customers of the MWD and every other agency that buys water from the state. Corley and several other lobbyists drafted a memo declaring the move to be impractical and unfair, not to mention unconstitutional. The committee reversed its action a few days later.

But if you’re going to cry foul, you’d better have the clout to get your way. That was the lesson for Karen Wyant, executive officer of the state Auctioneers Commission, which is supposed to weed shady operators from a rapidly growing profession. Last year, lawmakers seized reserves from almost every regulatory agency, including the auctioneers board, which survives on fees paid every other year by those it regulates. Wyant’s board sued the state, charging that the raid was illegal.

This year it’s pay-back time. Sen. Hill, a critic of the state’s regulatory system, wondered aloud one day if California even needed an Auctioneers Commission. A few weeks later, just before the committee adjourned, Hill suggested that the panel’s budget be reduced to zero. It was. The suit is languishing because the board has no money to pay its lawyers.

“It’s obvious it was just retribution,” Wyant says. “As a private citizen, it frightens me that someone can use their power in that sort of whimsical way.” As it turns out, this conference committee budget prepared on this day is stopped on the floors of the Assembly and Senate, at least for now. Wilson and the interest groups apply sufficient pressure to halt its progress short of final passage. But its ideas live on, ghosts to haunt the next plan that comes along. In or out today, no program knows its fate until the governor’s signature is on the document.

“When they get down to the closing night and they still need $500 million here or there, you never know what’s going to jump back up again,” Corley says.

The counties learned that lesson the hard way. After weeks of negotiations, they thought they had prevailed. Standing on the Capitol steps one recent afternoon, Wall, their lobbyist, was talking about the difficulty of making his case to lawmakers without the help of a political action committee or a powerful constituency. He was optimistic. But something was nagging at him. “They haven’t rolled right over us--so far,” he says. “But I don’t know if I should say that today. Because it could happen tomorrow.”

The Budget Renegades

Here are the two key players who developed a budget alternative that is being presented to the Legislature in Sacramento: State Sen. Frank Hill (R-Whittier) Age: 38. Education: Bachelor’s degree in political science, UCLA; master’s degree in public administration, Pepperdine University. Career: Won a special election in April, 1990, in the 31st Senate District. First elected to the Assembly in 1982. He was formerly the field director of then-Rep. Wayne Grisham’s Whittier office. Hill is the Senate Republicans’ representative to the joint budget committee. Assemblyman Phillip Isenberg (D-Sacramento) Age: 53. Education: Bachelor’s degree in social science, Cal State Sacramento; law degree, Boalt Hall, UC Berkeley. Career: First elected to Assembly in 1982. Formerly chief consultant to Assembly Ways and Means Committee. Isenberg is a close ally of Assembly Speaker Willie Brown and is considered one of Gov. Pete Wilson’s favorite Democrats in the Legislature.