Davis Signs Bills to Reduce Shortfall

Gov. Gray Davis signed into law Monday a series of bills that will reduce California’s record budget shortfall by $3.6 billion through borrowing and cuts in services as Wall Street executives arrived to brief lawmakers on how they might finance their way out of the crisis.

The bill package Davis signed is rooted in a compromise in which Republicans voted for borrowing $1.8 billion to make a state employees pension fund payment in return for Democratic support for cuts in health care and education.

“It is clear we have a long way to go,” Davis said, noting that state lawmakers have made about a $9-billion dent so far in a shortfall estimated to be as large as $35 billion over the next 14 months. “I’m convinced we can get there if we act in a bipartisan fashion and respect one another’s differences.”

The deal was approved with no time to spare. Monday was the deadline to achieve the full savings from the bond plan. Had lawmakers waited any longer, $656 million in potential savings would have been lost.

Republicans hedged on supporting the bonds after the nonpartisan legislative analyst’s office said in February that borrowing to pay the state pension funds is “poor fiscal policy.”

Lawmakers ultimately signed off on cutting $328 million in K-12 education spending and $317 million in health-care programs. The cuts came as the California Assn. of Public Hospitals and Health Systems released a report warning against additional burdens on a public health system already struggling to provide care for about 6 million Californians who lack medical insurance

Included in the cuts approved Monday is a change in Medi-Cal rules that will require recipients to file reports twice a year to prove that they are eligible to receive subsidized health care. The move could result in tens of thousands of Californians losing their health insurance, according to statistics from the state Department of Finance.

Davis said that despite the cuts he approved Monday and others that he has proposed, he hopes that the budget crisis can be resolved without the massive teacher and police layoffs for which many cities have been bracing.

“It is my hope and expectation very few teachers will be laid off and very few law enforcement personnel will be laid off as a result of actions we take here in Sacramento,” he said.

As the governor was signing the bills, executives from Wall Street firms arrived at the Capitol to meet with a bipartisan group of 18 lawmakers working on a budget solution.

There is increasing support from both parties in the Legislature for a $10-billion borrowing plan to ease the pain of closing the budget gap.

But Republicans remain steadfast in their opposition to raising taxes to underwrite it, and Davis continues to say that it cannot be pulled off unless taxes are raised.

Times staff writer Gregg Jones contributed to this report.