Clashing Philosophies Finally Bent to Achieve Accord on State Budget

SACRAMENTO — A two-month-long deadlock over a new $98-billion California budget inconvenienced elderly and disabled people, crimped vendors who sell to the state, and left some college students wondering about their state assistance.

But after weeks of negotiations, the standoff ended in the closing hours of the legislative session, after Democrats agreed to drop their plans to dramatically increase taxes on smokers and Republicans abandoned their calls for $4 billion in spending cuts. To secure the deal, Republicans signed off on $2.4 billion in new revenues and Assembly Democrats agreed to $1.2 billion in spending reductions above what the state Senate approved in June.

For both parties, those were hard compromises that challenge not only their vision of the current budget but also their longer-view notion of what California needs to prosper.

Republicans, who have little direct influence over life in the Capitol because Democrats enjoy commanding majorities in both houses of the Legislature, want to cut spending as a way of bringing the state’s programs in line with tax collections.

Democrats generally approach the problem from the opposite position, preferring to increase taxes to help bridge the state’s year-after-year shortfalls.

In the end, Republicans succeeded in blocking some new taxes sought by Democrats--for now.

And Democrats may have signaled one aspect of their long-term approach by approving a bill in the Senate that would allow the Davis administration to triple car fees without legislative approval. Gov. Gray Davis would not say Sunday what he would do if the bill reached his desk. The Assembly did not consider the bill before adjourning Saturday.

Davis Plans More Cuts

Davis, who has been criticized by Democrats and Republicans for not playing a more active role in resolving the budget dispute, said he plans to make additional cuts to the spending package before he signs it, perhaps by Thursday. Paychecks for elected officials and legislative staff and payments to vendors that were delayed because the state was without a budget are expected to go out within a week after Davis signs the budget.

The governor added that this year’s deadlock reflected deeply felt positions of the two parties, making it difficult for him to intercede and more appropriate for Assembly Democrats to take the lead role in the talks. Davis is running for reelection against Republican Bill Simon Jr., and the long standoff in Sacramento also loomed as a potential campaign issue in which Davis stood to lose far more than Simon.

“What Republicans wanted was a reduction in programs Democrats care deeply about,” Davis said. “That required a different strategy.”

The Senate approved a budget in June, soon after it was brought to the floor. That relatively swift approval was not repeated in the Assembly.

There, Republicans mounted a unified stand against the multibillion-dollar tax package endorsed by Democrats. As the weeks dragged on, frustrations grew among legislators. News accounts highlighted the effects of the standoff on poor people and others; some Assembly members were urged by constituents to halt the long talks.

Political and constitutional factors, however, combined to make resolution difficult. California is one of three states that require a two-thirds vote of the Legislature to approve a state budget. In the state Senate, Democrats hold enough seats to pass a budget with just one cooperating Republican; in the Assembly, four Republicans are needed.

Jean Ross, executive director of the California Budget Project, which weighs the impact of budget decisions on low-and middle-income Californians, said that helped drag out the negotiations. “The level of diversity and division you have in California, and thus the Legislature, makes it difficult to reach an agreement,” she said.

In the Assembly, Republican leader Dave Cox of Fair Oaks accused Democrats of ignoring GOP warnings for years of the dangers of overspending. Assembly Speaker Herb Wesson (D-Culver City) voiced frustration over Republicans’ refusal to compromise on their position of no new taxes.

To Democrats’ dismay, GOP legislators banded together this year and refused to negotiate with their liberal counterparts without the blessing of Cox, who found the leverage he needed to secure a variety of concessions from Democrats, including $1.2 billion in spending reductions over what the Senate approved. They include additional reductions to state agencies and departments, funding public schools at the minimum level required by law, and an early retirement program to dwindle the number of state bureaucrats.

“The unique thing this year is that we had four members who said we will not go up on this budget until you tell us this is the best we’re going to do,” Cox said.

Democrats won approval of last year’s budget by sidestepping GOP leaders and convincing the minimum number of Republicans to bolt from their caucus and vote for the budget. Observers cite Cox’s leadership and a recent redrawing of legislative districts that made most seats safer for incumbents as reasons the strategy failed this year.

“In the end, the Democrats had to try to negotiate,” said Kevin Gordon, executive director of the California Assn. of School Business Officials. “It comes down to a new reality, which is picking off a couple of Republicans isn’t as effective of a tool as it once was.”

Foiled in their attempts to sidestep the GOP leadership, Democrats eventually agreed to cap spending next year so that it does not exceed revenues, which would set the stage for a multibillion-dollar reduction in state spending. The cap addresses a Republican concern about the threat of future deficits, which prior to the agreement reached Saturday were expected to total $45 billion over the next five years.

Another feature of the deal is the elimination of 1,000 vacant state positions from the books next year on top of the 6,000 that are expected to be eliminated this year to save more than $300 million. Republican lawmakers have made an issue in recent years that “phantom jobs” continue to haunt state payrolls.

Having responded to some of the GOP’s biggest concerns, Democrats then turned to securing the support of key Republican members who agreed to meet with them--with the blessing of their own party leadership. To win the backing of Assemblyman Keith Richman of Northridge, who was one of four Republicans to vote for the budget Saturday, Democrats agreed to let voters decide whether they want to earmark 3% of the general fund each year to pay for infrastructure projects. The proposal received a chilly reception from certain Democrats and labor groups, but it nonetheless cleared the Legislature on Saturday night after a flurry of action.

The Senate Appropriations committee agreed just before 10 p.m. to consider the constitutional amendment.

Looking dazed, some with their heads propped on their hands, members listened to Sen. Steve Peace (D-El Cajon) and committee staff try to explain how the fund created by the measure would be affected by fluctuating state revenues and ballot measures pending before voters.

“I really don’t know exactly what we’re talking about,” said Sen. Betty Karnette (D-Long Beach).

Tobacco Tax Fails

Democrats found the fourth Republican vote they needed after they agreed to drop their plans to hike state excise taxes on tobacco to $3 per pack. The change appeased Assemblyman Mike Briggs (R-Fresno), who said he would not vote for a budget that contained new taxes.

Briggs said he also liked changes Democrats made to a plan by Davis to suspend for two years businesses’ ability to deduct so-called “net operating losses” to raise $1.2 billion.

The plan was modified to let companies claim 100% of the losses when the suspension ends, as opposed to a scheduled 65%. Advocates for the poor contend that the change will translate into a tax cut for California corporations that will eventually exceed $300 million a year.

The suspension is one of six so-called “revenue enhancements” that Republicans signed off on to raise $2.4 billion. Other proposals include suspending a teacher tax credit and increasing withholding on stock options and bonus payments from 6% to 9.3%.

The concession angered Assembly conservatives who blasted the deal during a Saturday night debate on the spending package, which cleared the house on a vote of 54 to 26.

“This budget is not a compromise. This budget is a con job,” said Assemblyman Jay LaSuer (R-La Mesa). “Smoke, mirrors, tax increases.... It’s all here.”

Wesson, by contrast, saw the blend of additional revenues and trimmed services as evidence of success, both for the Legislature and for his leadership.

Assemblyman John Campbell, the Irvine Republican who handles budget matters for his caucus, described the leadership decision to accept the compromise less as a victory for either side than as a bow to the inevitable.

“At some point we have to say, can we justify holding this position, or do we need to move?” he asked. “We decided we needed to move.”

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Times staff writer Nancy Vogel contributed to this report.