Rejection of Republican Budget Plan Could Clear Way for a Deal

California lawmakers Tuesday rejected a Republican plan to cut state spending extensively -- though still not enough to have balanced the budget -- clearing the way for what some lawmakers predict will be a deal that avoids tax hikes but defers much of this year’s difficulty into next.

Under the Republican proposal, the Coastal Commission would have been dismantled, local schools would have taken another $500-million hit beyond what they already have absorbed, and public colleges and universities would have lost hundreds of millions of dollars more than they have braced for. Health-care services for the poor would have been significantly reduced and cost-of-living increases for welfare recipients would have been eliminated.

But the proposal included no new taxes, an aspect that Republicans said was essential to turning around the state’s economy.

“When you are going broke, you have to tighten your belt,” said Senate Republican Leader Jim Brulte of Rancho Cucamonga.

The state Senate rejected that approach, 13 to 26.

The vote was part of a regular feature in the state Capitol’s running political theater, in which an ill-fated budget proposal is put up for consideration to make a point -- in this case, Democrats wanting to show how much the poor and the environment could suffer under the Republican plan.

During a testy debate that preceded the vote, Democrats accused Republicans of coldheartedness. Republicans responded by calling Democrats reckless spenders.

To some veterans of the Assembly and Senate, an eventual agreement increasingly appears to revolve around a budget that avoids any new taxes beyond the car registration fee hike that the Davis administration already has enacted by administrative order.

In the three weeks it took to get the Republican plan to the floor, the resolve of Democrats to continue pushing for more tax hikes has started to fade, with some convinced that their counterparts are dragging out the debate to deepen the troubles of Gov. Gray Davis, who is facing a possible recall election.

“Every day that goes on [without a budget], it is another nail in Gray Davis’ coffin,” said Sen. Don Perata (D-Alameda), who said he would nevertheless continue to fight for new taxes. “I think this is very well-orchestrated. This is something that is part of a larger strategy.”

Yet Tuesday’s drill also showed that some Republicans were growing weary. The party was unable to present enough cuts to balance the budget in its plan, and even then one of its members refused to vote on it. Another voted for it but said he did so only because he knew it stood no chance.

Democrats could pass a tax increase in the Senate with just two Republican votes. In the Assembly, six Republican votes are needed to meet the constitutional two-thirds requirement. Five Republicans there refused to vote on their own party’s budget plan.

Shortly after castigating Republicans in a speech on the Senate floor Tuesday, Sen. President Pro Tem John Burton (D-San Francisco) said he was “hopeful” that a budget deal could be put together soon.

“There is no one that doesn’t want to do this,” Burton said of getting a budget passed.

While Senate Democrats continued to say a half-cent sales tax hike was crucial to closing the budget gap, some in the caucus were considering reluctantly voting for a budget without it. At least three Democrats have said publicly that they now may be prepared to approve a budget without that tax increase. Such a budget would rely instead on borrowing more than $10 billion this year to eliminate last year’s deficit and then shifting tax revenues over to pay the interest and principal on that loan over several years.

Democrats would then push for a tax increase in the coming months, possibly as a ballot initiative that would be put before voters in March.

Davis, who had predicted that a no-tax budget would soon emerge from at least one house of the Legislature, reiterated Tuesday that lawmakers should act quickly, now that Republicans have had the chance to put their proposals up for votes, only to see them rejected. “Now the time has come to pass a budget,” Davis said. “There is no more reason to delay.”

Still, the on-again, off-again negotiations remain focused on issues that have divided the parties for months, principally a difference of opinion over how to finance a bond that would roll $10.7 billion into the future. Republicans want to fund borrowing for the rollover with existing taxes, while Democrats have proposed a half-cent sales tax increase to finance that loan.

The sales tax Democrats are calling for would raise more than $2 billion annually, enough to finance the deficit bond over the next five years. Without a new tax, the Wall Street banks that would loan the money to California say the only way they would be willing to participate is through a complicated tax-swap scheme in which local governments would give up a portion of sales taxes in exchange for a boost in the share of property taxes they get to keep.

Local governments have been wary of that proposal, which would restructure their sources of income and could disrupt some local budgets. A city that has relied on sales taxes generated by “big box” retailers, for example, would find much of that revenue taken away. The larger share of property taxes they have been promised in return might make it up, but in some cases, might not, introducing a note of uncertainty that makes some local officials nervous.

“You have to make sure people losing money will stay whole,” Burton said Monday, adding there was “some but not a lot” of support for the tax swap among Democrats.

The Republican budget proposal voted down Tuesday included $2.7 billion in spending cuts beyond what Democrats already had proposed, while rejecting another billion dollars in fee increases. Most Republicans stood behind the proposal, saying it was needed to address the state’s dire fiscal situation.

Yet Sen. Jim Battin (R-La Quinta) said he voted for the Republican budget only because he knew it stood no chance. He railed against its reliance on a $1.1-billion cut in funding to local governments. “Any final budget that has a cut to local government I will not support,” he said.

Sen. Jeff Denham (R-Salinas), whose district includes a large percentage of Democratic voters, declined to vote on the proposal. Sen. Bruce McPherson (R-Santa Cruz) voted for the Republican plan but suggested he was doing so reluctantly.

“This all-or-nothing scenario we are facing today is all about politics, about who is going to get favorable spin,” he said.

The one Republican vote against the proposal came from Sen. Tom McClintock (R-Thousand Oaks), who said it did not cut enough to balance the budget and objected to the borrowing contained in it.

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Times staff writer Carl Ingram contributed to this report.