Davis Signs State Budget

Gov. Gray Davis on Saturday signed a $99.1-billion budget that bore faint resemblance to his original spending plan, but the Democratic governor, fighting to keep his job,claimed victory over Republican efforts to cut deeply into education and health care.

Flanked by labor representatives, environmentalists and teachers, the governor sought to put the best face possible on a budget that has been derided by Wall Street and Democrats and Republicans alike for its reliance on borrowing and accounting maneuvers that build in a $7.9-billion deficit to be dealt with next year.

The Oct. 7 recall election that could force Davis from office overshadowed the midday signing ceremony, as it had months of rancorous budget negotiations. The stalemate stretched a month into the new fiscal year and cost the state about half a billion dollars.

Unlike last year, when he used his line-item veto to cut $235 million from the budget lawmakers sent him, Davis left this budget almost untouched, shaving only about $1 million in cuts Saturday from general fund spending on three obscure programs.

At $71.1 billion, the general fund portion of the budget, which pays for most state government programs, is about $7 billion less than last year’s through a combination of spending cuts and creative accounting

In a speech before signing the budget bill, Davis used the cadences of the campaign trail to drive home the theme that the budget could have been much worse had he yielded to Republican demands.

“They wanted to eliminate 110,000 4-year-olds from kindergarten, but we wouldn’t let them,” he said. “They wanted to eliminate 1 million immunizations for children. We wouldn’t let them. They wanted to eliminate health benefits for 400,000 children who already have had them. But we wouldn’t let them.”

Hewing to a partisan message, the governor accused Senate Republican Leader Jim Brulte of prolonging the budget standoff by opposing new taxes. Brulte, of Rancho Cucamonga, had warned fellow Republicans he would campaign against anyone who broke ranks and supported tax increases as a way to close a $38-billion budget gap.

“We believed they were on track to pass a temporary half-cent sales tax until my good friend Jim Brulte drew a line in the sand,” said Davis.

Davis invited Brulte to the ceremony in the governor’s Council Room, but the GOP leader stayed away.

Many lawmakers credit Brulte and Senate President Pro Tem John Burton (D-San Francisco) with crafting the accord that led to Saturday’s bill signing. Though they lead opposing parties, the two men enjoy a respectful relationship that proved key to settling the dispute.

At the same time, some lawmakers portrayed the governor as a distant figure in the budget negotiations, so preoccupied with the recall effort and isolated by a lack of friendships in the Legislature that he could play only a modest role in steering the sides toward a compromise.

The Republicans were quick to lash back Saturday.

“If the governor is looking for scapegoats he should look no further than himself,” said Peter DeMarco, spokesman for Assembly Republican Leader Dave Cox of Fair Oaks. “Everyone except the governor knows that California is in this fiscal crisis because of his gross mismanagement.”

Politics shaped this year’s budget as never before, analysts said. During the months of debate over tax increases and spending priorities, a Republican-led signature-gathering campaign to recall Davis took root, gained momentum and qualified for an Oct. 7 special election. Candidates face a Saturday filing deadline for the opportunity to replace Davis.

Davis, many other Democrats and political analysts viewed the resolution of the budget impasse as a potential lift for the governor as he turns his full attention to defeating the recall drive.

“Putting the state budget in place is a prerequisite for a successful outcome on the recall,” said Democratic consultant Darry Sragow. “The fundamental view that voters have is they elect the governor and the Legislature to do a job and the job includes having a budget. They now have a budget and that gets a major chicken bone out of everybody’s throat.”

But the budget triples the vehicle license fee, posing political risks for Davis, especially with 600,000 notices of higher fees going out in the mail every week, analysts said. That hike will bring in another $4 billion a year, and proponents say it is essential to easing the shortfall.

“If it weren’t for that, I think the budget would quickly recede,” said Bruce Cain, a political scientist at UC Berkeley. “But the vehicle license fee tripling is a potential trigger for populist anger. Even though it’s not fair to say that Gray Davis is responsible for that, because basically the Democratic Party wanted that and even some Republicans wanted that as well, the reality is he may get some flak for that.”

Davis conceded the budget is not “pretty.” It will largely protect public schools from the deep cuts feared earlier this year.

Higher education won’t be as fortunate.

The University of California and the California State University system lost about $900 million in state support, forcing 30% increases in the cost of student fees. Those increases on top of a smaller fee hike last spring will affect 600,000 students. And officials have warned that tens of thousands of students could be denied entrance to state colleges and universities in fall 2004.

Budget cuts will force community college fees to jump from $11 to $18 a unit this fall.

Health services will be reduced in a number of areas, including a 5% cut in payments to doctors who treat low-income patients under the Medi-Cal program and the forgoing of a cost-of-living increase for the aged, blind and disabled.

In addition to tripling the tax on 30 million motor vehicles, the budget depends on more than $14 billion in new, long-term borrowing to pay off last year’s deficit and support existing programs.

Davis pressed for --and received, with Republican backing --the power to cut programs later if spending exceeds projections during the year.

State Finance Director Steve Peace said that if a department or agency begins to spend more than is authorized, the governor can cover it by dipping into the money set aside for other departments. He can shift up to 5% of another department’s budget, Peace said.

Lawmakers supported giving Davis such authority to keep next year’s deficit from ballooning out of control. “There was a mutuality of interest in making sure this budget stayed inside its box,” Peace said.

The governor said he agreed with lawmakers in May that if they gave him a budget that kept the projected year-end deficit to $8 billion or less, he would “respect this compromise budget and would not veto much.”

The budget that Davis signed Saturday looks little like the one he initially proposed in January. Gone from the final budget are Davis proposals to raise $8 billion in new taxes by increasing income taxes on top earners and raising state sales and tobacco taxes. Gone, too, is Davis’ call for shifting $8 billion in programs to counties --to be paid for by the tax increases.

David Hitchcock, director of state and local government ratings for Standard & Poor’s, told Wall Street analysts and reporters in a recent conference call that it was “the first time in recent memory that the governor hasn’t largely gotten what he’s requested.”

The governor was stymied by a constitutional requirement that the budget, and any tax increase, pass by a two-thirds vote. That gave the minority Republicans a level of influence disproportionate to their numbers, and the power to deny Democrats a budget unless their demands were met.

As he claims credit for beating back Republican cuts, Davis’ role in lifting the budget stalemate that dominated the Capitol in recent months is in dispute. Some lawmakers describe the governor as a peripheral player who did not even come to Sacramento amid the marathon Assembly session that culminated Tuesday with the budget’s passage.

Davis spoke to Democrats about passing the budget but not rank-and-file Republicans. He presided over about two dozen “Big Five” meetings of legislative leaders that one of the principals describes as more cosmetic than substantive.

“It appeared to us, relative to the Big Five meetings, there was more interest in the image of working than the actual output,” said Cox, the Assembly Republican leader.

Assemblyman Joe Canciamilla, a Pittsburg Democrat who voted against the budget, said of Davis: “He’s not sort of a, ‘Let’s just call up and chat’ kind of guy.” The dearth of enduring friendships in the Legislature makes it “much harder” for Davis to close complex deals, he said.

Davis countered Saturday that he was deeply involved from the earliest stages.

“I’ve worked harder on this budget than the previous four combined,” the governor said. “I’ve had more meetings, more calls, more strategy sessions with my staff and with legislators. And whether I’m in Sacramento or not, I’m working on the budget and I’m in touch with legislative leaders and in touch with my staff. So the proof is in the pudding. We got a budget.”

The cornerstone of the budget package is a plan to borrow $10.7 billion to pay off the deficit from the last fiscal year. The deficit bonds would be repaid with interest over five years.

To back the bonds, Sacramento would engage in a complex swap of tax revenues with local governments. Cities and counties would give up half a cent in sales tax to the state in exchange for a share of property taxes that now pay for public schools.

Each year for five years, the state would have to make up the $2.3 billion that schools lose to local governments.

The borrowing authorized by the current budget does not stop there. California plans to sell $1.9 billion in bonds to pay the state’s contribution to the pension funds of state workers. That borrowing also would be repaid with interest over five years

And the budget counts on borrowing another $1.5 billion by cashing in on future payments from the settlement of litigation between the states and tobacco companies.

Former state economist Ted Gibson said Californians will feel the consequences of these “spend now, pay later” budgets for years to come. Gibson said no business could borrow so heavily to pay for ongoing programs the way the state has for the last three years. “You can get away with that for one year, not for three,” he said.

The governor achieved one of his main goals in the budget: limited authority to make midyear budget cuts without having to go back to the Legislature. Throughout the winter and spring, lawmakers refused to adopt some of the cuts Davis recommended, which left state spending at a higher level and deepened the deficit.

The cuts Davis announced Saturday eliminated state support for a Huntington Beach redevelopment project ($500,000); an advisory committee on child development ($367,000); and a prison program to treat the mental illness of sexually violent predators ($147,000).

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Times staff writer Nancy Vogel contributed to this report.