Lawmakers Work on Compromise for State Budget

Facing mounting criticism that they are standing idle as California’s fiscal problems get worse, legislators are working on a deal to pass about $6 billion in new budget reductions as early as next week.

The proposal being worked out by the Assembly Democratic leadership is rooted in a compromise through which Democrats and Republicans would cast votes they have long resisted, lawmakers said. Assembly Democrats would support new cuts in health care, education and local government for the coming budget year in exchange for Republican votes in favor of borrowing $2.2 billion in pension funds to pay off debt.

“We’re hoping to find some kind of balance between revenues from pension bonds and cuts we will have to make,” said Assembly Speaker Herb Wesson (D-Culver City). “That is the next major step in resolving the budget crisis, but it is a very difficult one.”

Wesson stressed that the proposal is in its early stages, and is still being hammered out by Democratic leaders. Whatever compromise plan they come up with is likely to face resistance from liberal Democrats opposed to reducing government services too sharply when it is presented in caucus in the coming days.

“Whatever cuts people considered easy to make are a long way behind us,” Wesson said.

Earlier in April, the state treasurer’s office warned that $656 million in potential savings would be lost if the Legislature did not approve Gov. Gray Davis’ proposal to take out pension obligation bonds by May 5. Instead of using general fund money to make its yearly pension contribution, the state would sell bonds to generate the amount and pay interest to bondholders in the years ahead. That would free up the existing money to help fix the gap.

Republican lawmakers voted down a proposal to approve the bonds, but said they would leave the door open to providing the votes if Democrats came to the table with more program cuts.

No state has ever used pension bonds to pay off general government debt, according to the nonpartisan legislative analyst’s office. A report from that office advised lawmakers against taking out the bonds.

“Incurring decades worth of debt to avoid an annual operating expense as a budget-balancing tool is poor fiscal policy,” it said in a February report.

But in their desperation to find revenue this year, lawmakers are ruling few options out.

Republicans expressed cautious optimism upon learning that Democratic leaders were prepared to bargain.

“We are glad to see some in their caucus are ready to pull their heads out of the sand and recognize California is in a huge budget crisis and action needs to be taken,” said Peter DeMarco, spokesman for Assembly Republican Leader Dave Cox of Fair Oaks.

He said Republicans think that it is unwise to borrow from the pension funds to pay off debt, but “we would be willing to consider pension bonds if they are part of a package that contains meaningful spending reductions.”

Among the $2.8 billion in cuts and deferrals Democratic leaders are considering are $748 million in reductions to health and human services programs. Included is a proposal to cut certain Medi-Cal benefits and change reporting eligibility requirements for the program in a way that could result in thousands of Californians getting booted from its rolls. They are also considering cutting cost-of-living adjustments in aid to the disabled, and eliminating programs for seniors.

Also being considered are another $179 million in cuts to the University of California and California State University systems.

Democrats also are looking at ways to save $1.2 billion next year through accounting maneuvers such as shifts and budget transfers, along with new fees.

“There are a number of drafts out there,” Wesson said of the proposal. “Things are changing all the time. No cuts have been finalized at this point.”

The swift movement toward budget reductions suggests a strategy shift by Democrats, whose majority in both houses gives them control of the Legislature’s agenda. Just days ago, party leaders said they did not plan to make any more substantial budget cuts until late May.

Polls suggest that the public has grown increasingly frustrated with how lawmakers are handling the budget crisis. A Field poll released this week revealed that only 7% of Californians have a “great deal of confidence” that state lawmakers will “do what is right” to fix a budget gap estimated to be as large as $35 billion.

Also, in recent weeks Wesson has been under fire for awarding $350,000 in contracts to political allies to perform jobs of questionable value to the government. Critics said the lucrative contracts, which Wesson rescinded this month after they attracted media attention, suggest that he is out of touch with the magnitude of California’s fiscal problems.

Times staff writer Nancy Vogel contributed to this report.