Deadlock at Budget Deadline

State lawmakers on Sunday blew their constitutional deadline for approving a budget, and a bitter, weeks-long impasse continued between Democrats who reject more spending cuts and Republicans who refuse higher taxes.

Californians will feel no immediate fallout from the missed deadline, for which lawmakers typically have held little regard. Legislators have failed to meet the June 15 mark -- which carries no penalty, save for shame -- in 21 of the last 25 years.

But this year, the state’s $38.2-billion budget hole is deeper than in years past, and the price of a long delay could be steep. Government employees already are receiving warnings that they could be laid off later this year as the nation’s largest state girds to possibly run out of cash by August.

On top of that, the likelihood of California’s first-ever recall election aimed at unseating a governor is turning politics here, rowdy in good times, especially chaotic -- and is raising fears of a drawn-out budget fight.

“The town is totally dysfunctional at this point,” said Democratic political consultant Darry Sragow. “There is a sense that the wheels are coming off.”

Coping with such a large shortfall would be daunting under any circumstances. But the budget negotiations are shadowed by a complication few can ignore: the campaign to boot Democratic Gov. Gray Davis from office.

Recall proponents believe they will gather enough signatures to qualify their effort for a statewide vote, probably in October or November, and most political observers -- including Sragow and other Democrats -- endorse that prediction.

“The recall is done. It is happening,” said Assemblyman Ray Haynes (R-Murrieta), a vocal backer of the drive being largely financed by millionaire Rep. Darrell Issa (R-Vista).

In an interview, Davis stopped short of predicting that the drive will be successful, but said that with enough money almost any proposal can find its way onto a ballot. The election would cost taxpayers an estimated $25 million to $30 million.

In the meantime, the governor is taking an increasingly aggressive public stand on the recall, denouncing it as being promoted by a “bunch of rich losers with nothing else to do but throw the state into reverse.”

But Davis, whose popularity this spring hit a historic low, insists that the move to cut short his second term has had no effect on his budget strategy. Aides point out that he is stumping for his spending plan in various forums, urging support last week for $8 billion in taxes in a speech to the Los Angeles Chamber of Commerce.

After meeting with his finance staff Saturday, Davis again emerged to say that “it’s absolutely impossible” to resolve the shortfall without additional taxes, and called on Republicans to be more flexible on the issue.

Only a balanced approach -- combining spending cuts with revenue increases -- will prevent serious damage to public safety, schools and social services, he said. “The Republicans have to understand there’s an awful lot at stake here, not just next year,” Davis said. “If we don’t do this budget right, 30,000 teachers could lose their jobs.”

Though Davis said he is focused on the budget, Republicans and Democrats alike say the move to bounce him from office has left a noticeable mark on the man. It is impossible, they say, for Davis not to be influenced by the prospect of becoming the first California governor to face the ignominy of a recall.

“Mr. Davis has both eyes on this recall,” said Assembly Republican leader Dave Cox of Fair Oaks. “He is a myopic manager by his own admission. Is it a distraction for him? Yes.”

As evidence, Cox and others point to the governor’s evolving budget positions. In January, before all the recall talk became public, Davis proposed a budget that included a major restructuring of state and local government. In his revised budget, issued last month as the recall buzz turned into a roar, he dropped the sweeping overhaul and moved leftward by recommending more spending on schools and softer cuts to health care for the poor.

Was Davis, always a cautious politician, reluctant to promote budget solutions that carry some pain? The governor said he altered his proposals after failing to win legislative support. Critics suggest that his motives were political. “He has to shore up his support among the Democratic base to survive the recall,” said Republican political consultant Dan Schnur. “So his revised budget was a lot heavier on spending and borrowing than his original plan.”

Schnur and others wonder if Davis is softening his proposal to force state employee unions to forgo raises, a move that would pare $850 million from the budget. Most of California’s 200,000 state workers are scheduled to receive 5% to 7% raises starting July 2, with paychecks reflecting those raises arriving Aug. 1. The Davis administration faces pressure to renegotiate the contracts before the August checks go out.

Despite such urgency, talks on the contracts are turning serious only now, union officials said.

“Once [the raises are] in our members’ pockets, it is going to be very hard to change directions,” said Lance Corcoran of the California Correctional Peace Officers Assn. “The clock is ticking.”

Marty Morgenstern, in charge of the negotiations as head of the Department of Personnel Administration, said the recall has not been a factor in the pace of the talks. But unions representing state workers have been among Davis’ most loyal supporters. He would need their backing in a recall campaign.

“He has an eye to defeating the recall,” said Barbara O’Connor, director of the Institute for the Study of Politics and Media at Cal State Sacramento, “and those are allies who were instrumental in getting him elected, and will be equally instrumental in helping him survive.”

In many ways, this year’s budget crisis is a predictable hangover from 2002. Last year, with the state’s shortfall pegged at $24 billion, the budget standoff lasted until September, two months beyond the July 1 start of the fiscal year. When Davis finally signed the spending plan, few believed the state’s financial problems were solved. Senate President Pro Tem John Burton (D-San Francisco) called it “a get-out-alive budget.”

With the budget deal done, Davis and lawmakers could focus full time on the November election, planning to grapple with hard decisions -- such as restructuring the state and local tax systems -- in the off-election year of 2003. Suddenly, however, 2003 itself has turned into an election year -- a very strange one. If backers gather the requisite 900,000 valid signatures of registered voters and the recall qualifies for the ballot, Californians will decide whether Davis should be removed from office and, on the same ballot, pick his replacement.

Amid all this, lawmakers face fundamental and far-reaching questions: how to close what is the nation’s largest state budget gap, keep California solvent, and ensure that the deficit won’t recur. Though the state Constitution sets midnight on June 15 as the date for an agreement, the deadline with more consequences is July 1, the start of the new fiscal year.

The cost of delay this year could be dear. Wall Street lenders, representing the banks and brokerage firms that provide government and corporate financing, already are charging the state a premium to provide cash to keep services running. Bond traders are starting to question the wisdom of investing in more California notes.

And the California Supreme Court has ruled that the state cannot legally pay its workers more than federal minimum wage if no budget is in place unless lawmakers pass special legislation.

Davis and fellow Democrats see the budget solution as being a mixture of spending cuts and $8 billion in tax hikes, including a half-cent sales tax hike to pay for $10 billion in bonds that would gradually extinguish the deficit. Republicans refuse to embrace any tax increase. And Democrats resist further spending cuts.

Though they hold majorities in both houses, Democrats cannot pass a budget without Republican support. In addition to their own members, Democrats need votes from at least two Senate Republicans and six Assembly Republicans to reach the two-thirds majority required to approve a budget.

“Obviously, the Republicans are using the recall to leverage their position on the budget,” said Assemblyman Dario Frommer (D-Los Feliz).

Despite being routed in recent elections, Republicans see an opportunity to retake the governor’s office -- and seem to be turning more partisan.

Assemblyman John Campbell of Irvine, the lead Republican on the Assembly budget committee, donated $10,000 to the effort to recall Davis. Earlier this month, Senate GOP leader Jim Brulte of Rancho Cucamonga threatened to campaign against any Republican who voted for a tax hike. The move seemed out of character for Brulte, who was at the center of several budget deals during the last decade.

And as the recall drive progresses, some Democrats say Republicans may be overplaying their hand. “People do not like to be disadvantaged for purely partisan purposes,” Davis said. Referring to recall proponents, he warned: “They’re going to set up a prairie fire that is going to engulf them.”

Meanwhile, Davis increasingly seems to have returned to campaign mode. Despite the June 15 budget deadline, the governor, who won election in 1998 by pledging to improve public education, left Sacramento to attend public school functions in L.A. on Thursday and Friday.

Moderates in the Legislature worry that the $38-billion budget gap and the recall are on a collision course.

“I’m concerned that the state is headed to a fiscal train wreck,” said Assemblyman Keith Richman (R-Northridge). “The more time that goes on and the more signatures that are gathered, the harder it will become to reach a budget solution.”