Budget Rancor Increases

SACRAMENTO -- Running out of time to meet California’s constitutional budget deadline, leaders of the Republican and Democratic parties sniped at one another Monday, each accusing the other side of forcing the state toward an even deeper fiscal crisis.

State Treasurer Phil Angelides, a Democrat, opened the hostilities Monday by accusing two top Republicans of triggering “rapidly escalating concerns” on Wall Street with recent political moves, which have included supporting an effort to recall Gov. Gray Davis and threatening to retaliate against legislators of their party who agreed to tax hikes.

Angelides, who is considering a run for governor, said that the maneuvering could cost the state hundreds of millions of dollars -- and even its ability to borrow altogether.

Republicans called his letter a “smoke screen” and shot back that the problem is reckless spending by Democrats.

Jim Brulte, the Senate Republican leader whose tactics Angelides deplored, said he had consistently voted against budgets that overspent the state treasury, and thus had not contributed to the current problems.

“Having opposed the last three Davis budgets, I am both puzzled and fascinated by the logic you use to assert that I am somehow responsible for the state’s precarious credit rating,” Brulte wrote.

As those officials sought to blame each other for the lack of progress toward winning approval of a state budget by the Sunday deadline, others worked from the sidelines or avoided the fray altogether. Among Monday’s developments:

* Davis, who was in Los Angeles for the day, made no public appearances. Instead he scheduled a meeting of the legislative leadership for today. In recent weeks, such leadership meetings have done little to move the budget forward.

* Finance experts eyed the escalating rhetoric warily, warning that, although they are reluctant to comment during the deliberations, they also are cognizant of the harsh words being traded between top officials. “While we make note of the progress or lack of progress being made in the budget debate, we will try not to get too caught up in the day-to-day rhetoric that goes on,” said Raymond Murphy, a senior credit officer at Moody’s Investors Services. Moody’s, a bond-rating agency, already has lowered California’s credit rating to the bottom rung for states, driving up its cost of borrowing.

Assembly Democrats, rather than tackling the budget with the urgency that Wall Street and others are demanding, spent much of the day debating how to respond to a lobbyist who insulted two members last week and threatened to scuttle their bills unless they backed legislation supported by one of his clients.

* A coalition of education groups, fearing the cost to the state of a prolonged deadlock, launched an advertising campaign to step up pressure on the lawmakers to act.

Angelides was the first into the debate Monday, with his letter to legislators. In addition to criticizing Brulte for threatening political retaliation against Republicans who support taxes, Angelides said that Assemblyman John Campbell (R-Irvine), vice chairman of the Assembly Budget Committee, had unsettled investors with his decision to back the Davis recall.

“Your actions and comments of recent days have crossed the line,” he wrote to Brulte and Campbell. “They send a dangerous signal -- that rancor will trump good-faith efforts to resolve policy disagreements, triggering a budget stalemate, a cash-flow crisis, and the crippling of critical services.”

At least eight Republican votes are needed to meet the constitutional requirement for a two-thirds majority to raise taxes. Democrats say the budget hole has become so deep that trying to close it without new revenue would be impossible.

Along with cuts to some programs, they have proposed $8 billion in new taxes on sales, vehicles, tobacco and high earners. Republicans say they oppose all new taxes, which they say would impede the state’s economic recovery.

In his letter, Angelides warned that the recent escalation in rhetoric was deepening the budget stalemate.

If that continues, he said, it could lead to another reduction in the state’s credit rating, already the lowest in the nation. A drop of one notch in the rating, he said, would cost taxpayers about $400 million; a two-notch downgrade would cost Californians more than twice that.

Angelides called on Republican lawmakers to issue public statements saying they are willing to modify their positions on the budget in a good-faith effort to reach a compromise. The Republicans refused, saying that their stand on taxes is not the root problem. The real issue, they said, is that Democrats have overspent the state budget year after year, and that they must be stopped for the state to regain sound economic footing.

After reminding Angelides that he had opposed Davis’ previous spending plans, Brulte added: “I am also disappointed that, while many conservatives like me were raising the flag to warn about overspending, you remained, either on the sidelines or actively encouraging liberals to spend even more.”

Several major Wall Street banks have advised the state Department of Finance that, without a new sales tax, they would be reluctant to loan the state $10 billion that lawmakers in both parties hope to borrow to roll over the state deficit into the next five years. The borrowing is a linchpin of every budget proposal on the table.

Republicans say they are confident the banks will still loan the state money without a new tax, and are simply trying to negotiate the best deal for their investors at the expense of taxpayers.

Although the two sides were far apart on that question, some legislators were working last week on a deal to trade Republican support for a tax hike for Democratic backing of legislation to overhaul the state workers’ compensation system.

That effort was cut short, however, when Brulte warned members of his party in a closed-door joint Assembly-Senate GOP caucus lunch that he would work to end their political careers if they voted in favor of a tax increase.

Brulte said he would raise money for the next election to defeat legislators who strayed from the party’s anti-tax position and would visit their districts to campaign against them. He showed his fellow party members a mock advertisement that he said he would mail to voters in an effort to have them defeated. One lawmaker who was there called it “brazen intimidation.”

Campbell recently signed a letter urging voters to sign recall petitions against Davis, and gave $10,000 to the recall campaign.

In the letter, Campbell identified himself as vice chairman of the Assembly Budget Committee and blamed Davis for causing the deficit by “overspending and then lying about it.” Administration officials said the move called into question his seriousness about getting a budget passed.

Until Brulte issued his ultimatum, a few Republicans said privately they would consider a plan to increase the sales tax by half a cent in exchange for the easing of government regulations on business. Those Republicans have since said that they no longer are considering supporting a tax hike.

Democrats said the move has brought budget negotiations to a halt. Lawmakers made no discernable progress toward an agreement Monday.

Assembly Democrats spent much of the afternoon tied up in caucus, discussing whether lobbyists have too much influence over the Legislature after Richie Ross, a lobbyist for the United Farm Workers, lashed out at the chiefs of staff of two Democratic lawmakers last week.

Frustrated by the lack of apparent progress toward a deal, a coalition of teachers unions, school officials and parents groups began airing radio ads Monday, calling on lawmakers to pass a budget on time.

In one of the advertisements, a young boy tells his mother that he gets an “F” if he turns in his schoolwork late.

An announcer then says, “Let’s hope they don’t fail the test.”