Senate Set to Approve Budget Deal

Leaders of the California Senate agreed Wednesday on the framework of a budget deal that promises to break a vindictive political standoff that has driven the state toward insolvency.

Although some key details remained unresolved, senators were expected to vote on the budget as early as Sunday. The proposal, negotiated by the Democratic and Republican leadership, would roll over part of the state’s $38-billion shortfall while making substantial cuts in health care and aid to the poor.

What remained to be worked out was the number of years that the state would take to pay off $10.7 billion of the deficit that lawmakers hope to finance. Republicans want to pay it off within five years, but Democrats are holding out for longer, hoping to avoid even deeper cuts in prized programs next year and beyond.

Senate leaders refused to publicly confirm the deal, but several key players in the budget drama said that an agreement was at hand.

If the Senate approves it -- and leaders believed they had enough votes -- the measure would be sent to the Assembly for its approval, then to Gov. Gray Davis for signing. Lawmakers in both houses, however, have said for weeks that a Senate deal would be key to breaking the gridlock because the Assembly has been deeply fractured and dominated by partisan squabbles that at times have turned ugly.

At the insistence of Republicans, the budget would include no new taxes beyond a recent tripling of the state vehicle license fee. And, while yielding ground on health care, Democrats were able to avoid further cuts in basic welfare payments to the poor.

As the budget stalemate intensified in the spring, the divisions between Democrats and Republicans helped fuel the drive to recall Davis. In turn, recall politics complicated the budget process.

Some polls have indicated that a budget agreement could help Davis retain his office. They have also suggested, however, that voters are upset with the governor in part over his handling of state finances.

Given the refusal of Republicans to support raising taxes, Democrats are poised to settle for just half of the $8 billion in tax hikes sought earlier in the year by Davis. The money they got came in the form of the car fee hike enacted by administrative order, without a vote of lawmakers.

Any other new taxes would require two-thirds approval of the Legislature.

The budget deal would hit the poor hardest but would largely avoid new K-12 education cuts. Health-care programs for low-income Californians would be targeted with reductions totaling hundreds of millions of dollars more than Democrats had proposed.

Doctors who treat Medi-Cal patients would see their rates cut by 5% annually over the next three years. Several optional benefits for Medi-Cal recipients -- such as hearing aids, which some states provide even though they are not required to do so by the federal Medicaid program -- would no longer be covered, and nursing home workers would not receive cost of living salary adjustments.

Health-care advocates urged Democrats to resist such cuts.

“Seniors and children and people with disabilities will have a harder time getting medically necessary help” under the proposal, said Anthony Wright, director of Health Access, a group that advocates for the poor on medical issues.

Unlike past budgets, on which most Democrats voted together in a bloc, party leaders do not expect such unity on this proposal. They said that some more liberal Democrats would not vote for a budget with such steep reductions in aid to the poor. For the spending plan to receive the necessary two-thirds majority for passage, more than a bare minimum of Republicans would probably have to vote for it.

“We’re handing the state over to a minority within a minority,” said one Democratic lawmaker, who characterized the budget deal as “not a very Democratic proposal.”

Although the deal appears to be a victory for the GOP, most analysts have said no victors are likely to emerge from this debate. The most recent Field Poll indicated only 19% of registered voters approve of the job the Legislature is doing.

The budget deal would also borrow against tobacco settlement money owed California years into the future. State Controller Steve Westly said that paying the interest on such an obligation would be very expensive.

The part of the deficit that would be rolled over would be paid off through a complex swap in which the state would take a half- or quarter-cent of the sales tax that now goes to local governments and commit that revenue to repay the loan. It would take five to 10 years to repay the deficit bonds that the state would sell to investors.

To make the swap palatable to cities and counties, the state would return an equivalent share of property taxes to those communities.

The net result is that the state would take a hit of as much as $2 billion more per year, which would be offset principally by the additional cuts to health care and aid to the poor.

Several reductions that had been put forward by Republicans are not in the proposed budget. The California Coastal Commission would not be eliminated and money to buy food for seeing eye dogs would remain in the budget.

Lawmakers also scrapped a GOP proposal that would have delayed kindergarten by a year for 110,000 youngsters.

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Times staff writers Dan Morain and Nancy Vogel contributed to this report.