Budget Deficit Shadows Capitol

California lawmakers just lived through a bizarre and stressful year of man-made energy shortages, blackouts and billion-dollar utility bankruptcies.

Now comes budget mayhem. In an election year, no less.

As legislators take down their Christmas trees and flock back to the Capitol for the start of the 2002 lawmaking session Monday, they are being greeted by a sobering reality: The energy crisis might be over, but the financial mess it helped create certainly is not.

“No one is too excited about it, but we all know we have a responsibility,” said Assemblyman Herb Wesson (D-Culver City) of the budget mess.

“Obviously, it’s the most serious issue affecting the state,” said the lawmaker, who is set to take over as speaker of the lower house next month.

California faces a $12-billion budget deficit because of a slumping economy and a resulting downturn in revenue from taxes on stock options and capital gains, which the state had come to rely on during the dot-com boom. And that deficit figure doesn’t even include the $6 billion the state spent on electricity last year.

If California cannot complete a long-delayed bond sale to replenish state coffers for the power purchases, lawmakers will have to contend with a much more daunting $18-billion fiscal hole when they prepare the next budget.

“This year is going to be defined by the budget. There’s no question about it,” said Assemblyman Keith Richman (R-Northridge). “We are looking at a $12-billion budget deficit, and I am concerned that may worsen.”

Added Assemblyman Joe Simitian (D-Palo Alto): “It’s going to be grim. It’s going to make the energy crisis look like a warmup. . . . You cannot finesse a budget problem of that magnitude.”

State Senate President pro tem John L. Burton (D-San Francisco) described devising a solution to the state’s unpalatable fiscal condition as the “nutcracker” issue of the legislative session.

At least Burton, who has spent more than 30 years in public office, and has chewed on state budgets since the 1960s, when Pat Brown was governor, has some context in which to view the issue. For a largely unseasoned group of lawmakers who mostly came to the state capital in the last five years, after term limits forced out the Sacramento lifers, deficit politics will be a new experience.

“I am expecting another baptism by fire,” said Assemblywoman Rebecca Cohn (D-Saratoga), one of many newcomers who barely had time to hunt for apartments before they had to jump right into their legislative careers at the start of the energy crisis.

The state has not had a budget problem this grave since 1991, when Republican Gov. Pete Wilson was faced with a decline in the California-centered aerospace industry at the same time the national economy was in recession. Most of the current crop of legislators has been weaned on the multibillion-dollar budget surpluses of the late 1990s.

xWith little money to go around, some lawmakers worry that it will be hard to fashion any legislation of consequence this political season.

But Assemblywoman Carole Migden (D-San Francisco), who in recent years carried successful legislation curtailing predatory lending practices and allowing gay and lesbian couples to register as domestic partners in the state, said the shortage of cash should not deter lawmakers from trying to make a major impact.

In the fat years, Migden said, “Everyone was greedy beyond belief.” Now, she said, lawmakers will have to be more creative and “do something brilliant that does not cost a lot of money.”

Wesson agreed, and joked that his fellow lawmakers will surely come up with clever attempts to make new laws.

Already, lawmakers are gearing up to push a variety of far-reaching bills at the beginning of the session.

For the third year running, Sen. Don Perata (D-Alameda) will attempt to pass a measure clamping down on the payday loan industry, which consumer groups accuse of charging usurious interest rates to the poor. The industry has derailed previous efforts.

For the second straight year, Assemblyman Paul Koretz (D-West Hollywood) will try to pass legislation allowing gay and lesbian couples to enter into “civil unions,” which are not technically the same as marriage but grant a couple many of the same rights.

And numerous lawmakers are seeking to pass measures to protect financial privacy at a time in which banks, government agencies and other lending institutions are increasingly sharing and selling sensitive personal information without an individual’s knowledge.

Inevitably, however, dealing with the deficit will become the primary showcase for Democrats and Republicans to score political points and highlight philosophical divides heading into the March primary and November general election. The three GOP challengers to Gov. Gray Davis are already in full attack mode, hammering the Democratic incumbent at every turn over his fiscal management.

Parties’ Differences on Budget Becoming Clear

With the fortunes of many so-called down-ballot races contingent on the outcome of the governor’s race, legislators are bound to get caught up in the partisan ruckus. All 80 Assembly seats will be up for grabs during the election, as well as half of the Senate’s 40 seats, giving most incumbents a personal stake in the fight.

The parties’ differences are, in fact, already becoming clear in the way legislative leaders say they plan to tackle the budget problem.

Like Republicans, Democrats, who control both houses of the Legislature, are pledging to focus on shielding popular programs such as education and public safety from the brunt of the budget cuts.

But many Democrats are also intent on preserving welfare and health care spending and other social programs they consider vital to protecting against the harsher consequences of an economic downturn. And some other Democrats are touting massive bond issues to boost government investment in the state’s aging infrastructure, such as schools and roads.

Burton, the most powerful figure in the Legislature, identified bond issues for construction of schools and affordable homes as two of his top priorities.

Sen. Steve Peace (D-El Cajon), chairman of the Senate Budget Committee, said he supports piling numerous public works projects into an unprecedented bond issue of as much as $100 billion, to be paid off over 30 years. Included would be money for water, housing and higher education.

“I could make a pretty good argument that we should borrow everything we can get our hands on, because the interest rates are so attractive,” he said.

At the same time, some Democrats are raising the controversial possibility of a tax increase to help offset the deficit. Migden and Sen. Dede Alpert (D-Coronado) have already announced that they will seek to undo a recent cut in the fee Californians pay to register their cars. Burton says he supports the idea. Wesson said it should be considered.

Meanwhile, Republicans vow to fight that plan with everything they’ve got. GOP lawmakers appear energized by the deficit, in part because the budget is one of the few major issues on which the minority party still wields political clout. The budget, along with any new taxes, must be approved by a two-thirds vote, and that requires Republican support.

“We are going to oppose raising taxes of any kind,” said Senate GOP floor leader Jim Brulte (R-Rancho Cucamonga).

Other Issues Still Command Attention

Rather than focusing on how to raise more money, Republicans are repeating one of their favorite themes: reducing the size of government. They contend that Davis and Democratic legislators have essentially spent more than they had in recent years, and GOP lawmakers are gleefully hoisting the budget ax.

“We don’t have a revenue problem; we have a restraint problem,” Brulte said. “When you grow government 37% in three years, when the population has grown only 5% and the consumer price index has grown only 7%, that just shows a lack of restraint.”

Numerous other issues figure to command attention from lawmakers this year, notably the embers of the energy crisis. Though power prices have plummeted and the state is on its way out of the financial morass, many lawmakers believe that the state still lacks a long-term plan to make its energy market work.

There is also the new issue of terrorism, and the many demands facing government from the city to the state level since Sept. 11. Republicans quickly entered the fray this winter with a series of proposals to help law enforcement deal with terrorists, including letting prosecutors charge terrorists with the death penalty in the unlikely event that a terrorist faced trial in state rather than federal court.

But Burton is already pouring cold water on the minority party’s proposals, which would need Democrats’ support to get out of any committee, let alone both houses.

“The feds have already fairly occupied that field,” he said. “The people who want these bills want to get their names in the newspapers. The best thing the state can do is have effective medical and emergency responses.”