Both Sides Needed a Budget Deal

It looked hopeless. Democrats wouldn’t accept more spending cuts. Republicans wouldn’t swallow new taxes. The two sides couldn’t find a way to close a $38-billion shortfall or fulfill their most basic constitutional duty: passing a budget.

Months of legislative hearings, repeated “Big Five” meetings of Gov. Gray Davis and four legislative leaders proved futile. Neither side would budge. In desperation, Assembly Democrats fanned out to Republican towns across the state in late June, hoping to drum up public support for new taxes. It didn’t work. When they got back to Sacramento, Republicans had printed up T-shirts mocking the tour -- another sign of the bitter partisan spirit that pervaded the Capitol.

The irresistible force, Senate President Pro Tem John Burton said ruefully, had met the immovable object.

What finally broke the stalemate and triggered last week’s announcement of a budget deal was not so much a breakthrough, not an instance in which one side surrendered. It grew out of a mutual realization that the gridlock simply couldn’t continue -- that with schools and vendors panicked about losing state money, and with the Legislature’s poll numbers plummeting, they needed to make a deal.

Only two people could get it done. With Davis distracted by an accelerating recall movement, and with the Assembly hopelessly fractured, the solution would have to come from Burton and Senate Republican leader Jim Brulte -- the two men with the standing and the hold over their delegations to forge something of a compromise.

So they put their staffs to work. What they unveiled in a news conference Thursday was nothing pretty. The proposal relies heavily on borrowing. It narrows the shortfall but doesn’t eliminate it. But it saves face all around. It carries no new taxes, appeasing the Republicans. And it does not shred the social safety net with deep budget cuts -- something that a defiant Burton had said he would never countenance.

Most important, it is a proposal that seems capable of drawing 54 votes in the Assembly and 27 votes in the Senate -- enough to pass.

“Brulte and I have been through this ... 12 or 13 budgets, some of them easy, a lot of them hard,” Burton said in an interview.

Perhaps none as hard as this one.

Hopeful Moment

In December -- the earliest stage of the budget season -- there was a hopeful moment. About a dozen lawmakers, including Brulte and some Democratic leaders, flew to Hawaii for a conference sponsored by the labor union that represents state prison guards. They sunned and dined and talked about the budget at a lush Sheraton resort -- a rare bit of bipartisan fraternizing. Democrats at the time thought they could pass a budget with $10 billion in spending cuts and $10 billion in new taxes. But when they got back to the mainland, such hopes evaporated.

Republicans were adamant. They would accept no new taxes. And though they are the minority party, they have enormous clout. Because of a state law that says budgets can pass only with a two-thirds vote, the GOP had enough strength to hold out indefinitely.

Still, Republicans knew that if they wanted something to pass, they would have to bend. The deal that is expected to clear the Senate tonight springs from a routine Republican caucus meeting a month ago. Brulte stood before his delegation and explained that Republicans could win on the point that mattered most to them -- no new taxes. But the threefold increase in the vehicle license fee would have to stay. And the new budget would still contain billions of dollars in debt.

For the hard-core conservatives in his caucus, the concessions were tough to stomach. But Brulte, an imposing presence at 6-foot-3, issued a challenge: Anyone who felt able to strike a better deal was welcome to take his place.

Nobody moved. A compromise was budding.

About the same time, Democrats were coming to accept that the GOP was serious -- that the party would not embrace new taxes.

In past years, Democratic-controlled legislatures had passed budgets by picking off wayward Republicans willing to break ranks with the caucus.

Not this time. Brulte threatened to punish anyone who strayed by campaigning against that legislator in the next election. There would be but one defection -- Assemblyman Keith Richman (R-Northridge), who backed a half-cent increase in the sales tax.

For a time, it seemed that Burton and Brulte were close to an agreement. But on June 25, Senate Budget Committee Chairman Wesley Chesbro (D-Arcata) made an unexpected demand on the floor that broke the momentum. Chesbro called on Republicans to put their own plan into bill form. That meant two weeks of legislative drafting, legal vetting and caucus review -- all for a bill that had no chance of passing.

“I just rise to insist, to implore my Republican colleagues to do their duty to either vote for this budget or put forward the amendments necessary in order for us to solve this problem,” Chesbro said.

It was a challenge, and Brulte wouldn’t back away.

“If you now say the place to debate the budget is the Senate floor, we will bring amendments,” he said. “We will go to counsel today with scores of amendments.”

On July 11, the Senate defeated the bill -- and the negotiations began anew.

Less than a week later, Republicans met over lunch to scale back their proposed list of budget cuts to levels that Democrats might find palatable.

Brulte went through the list and told the caucus what he felt he could sell. His grip on the caucus was firm, but not unquestioned. One of the most conservative senators, Tom McClintock of Thousand Oaks, argued for holding out for more concessions.

Brulte said he and Burton would both “tell you it is not fun being the one” to negotiate the deal. “You know you are going to be criticized from the right and the left. Purists are going to say, ‘Hey, we could have gotten more.’ ”

An old sticking point remained. Democrats were insisting there would be no way to borrow $10.7 billion to pay off last year’s deficit without new taxes. But in the background, the budget staffs for both parties were quietly putting together a plan to do just that. Department of Finance Director Steve Peace had come up with a complicated tax swap proposal between state and local governments that ensured the bonds would be paid off. The state takes the sales tax going to cities and counties and uses that to draw down the deficit; the local governments are reimbursed with a larger share of property taxes.

The swap met the Republican’s core demand: It involved no new taxes.

By Wednesday, Burton was briefing Senate Democrats about the contours of a deal with Brulte. In a long caucus meeting, he laid out the cuts that would have to be made, and some members bristled. So much so that the deal seemed to be unraveling.

A Close Call

That same night, Burton went back to Brulte and two other Republican senators to inform them that he wanted to change his terms a bit. Instead of financing the deficit over five years, he wanted to stretch the period to 10 years to ease some of the cuts in aid to the poor.

The deal nearly blew up when Republicans said they would not accept such a long borrowing period.

The next morning, Burton thought better of it.

“They were worried about going out 10 years,” Burton would say later. “Our basic position has always been to protect these programs for the poor .... That’s what we did, and we were not going to hassle over that issue.”

By Thursday, the deal was done.

At 1 p.m., Brulte met with his caucus. He sketched out the terms of the agreement and repeated his challenge. Anyone who felt able to do better was welcome to take a shot.

Once again, no one stepped forward.

At 2 p.m., lawmakers got a powerful reminder of the price of further delays. Standard & Poor’s announced that it was downgrading the state’s bond rating three notches, nearly to junk-bond status.

At 3:30 p.m., Brulte and Burton strode to the podium of Room 1190 in the Capitol to announce that -- three weeks into the new fiscal year -- they at last had a deal. The leaders stood side by side.

“We walked in the door to 30-something billion [dollars] looking at us, and there’s never been anything like that,” said Burton, wearing his trademark tan sports jacket. “The fact that we got out alive” without greatly damaging the state infrastructure -- “I think that speaks well for the fact that we were able to do that.”

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Times staff writer Nancy Vogel contributed to this report.