Governor’s Allies Turn Budget Foes

The fiscal year ended Wednesday without a new state budget, as negotiations hit unexpected resistance: dissension within Gov. Arnold Schwarzenegger’s own party.

Republican lawmakers, frustrated with the direction of talks over the $103-billion budget, are threatening not to vote for whatever plan emerges from the governor’s office. They complain that he is yielding to too many Democratic demands, and that the budget is starting to resemble the kind of spending plan -- marked by overspending, irresponsible borrowing and too many fees -- that former Gov. Gray Davis would have crafted.

“The governor has tremendous political capital at this point in time, and the governor should use that political capital to enact a fiscally responsible budget,” said Assemblyman Keith Richman (R-Northridge), a member of the Legislature’s bipartisan caucus. “I’m concerned that the agreements that are being made are moving us in the wrong direction.”

State Sen. Chuck Poochigian (R-Fresno) said “there remain for many of us some very serious questions about where we are.” He praised the spending reforms contained in the governor’s original January budget, but said those proposals “for the most part have been jettisoned in the process of the last several weeks.”

Another veteran Republican lawmaker, who spoke on the condition that he not be identified, was blunter: “If this budget had the name Gray Davis on it, it wouldn’t be supported. It walks on the wrong side of the issues relative to the Republican Party.”

Assembly Republican leader Kevin McCarthy, one of two GOP lawmakers involved in budget negotiations with Schwarzenegger, does not blame the governor. But he expressed frustration.

“The more Democrats work on this budget, the more it looks like a Davis budget,” McCarthy said. “It is coming down to a basic philosophical difference: Are we going to change the way we have managed this place for the last five years?”

The governor’s GOP colleagues rattle off their grievances. They complain that he has been unable to extract any of the meaningful salary and benefit concessions from state workers that he has promised, that he is insisting on new fees that will harm industry, and that he is not pushing for the program cuts needed to close the deficit for good.

A Republican rebellion could jeopardize the coalition Schwarzenegger needs to complete the first budget of his tenure. In California, budgets must pass the Legislature by a two-thirds vote, which means that at least a few Republicans must join the majority that Democrats hold in both houses.

Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento) said the Republicans have nothing to complain about.

“This budget does contain some significant sacrifices,” he said. “We certainly dislike the higher fees for state universities. We dislike some of the cuts in health and human services. We dislike the fact that K-12 had to sacrifice a couple of billion dollars. But we are realistic.”

Steinberg said Republicans would have to put up more than the minimum six votes to get the budget bill passed, as some Democrats will not be able to bring themselves to vote for the tuition hikes and cuts.

“The expectation is going to be that the Republican legislators are going to follow the lead of the governor,” he said.

Senate Republican leader Dick Ackerman (R-Irvine) said it was premature to say how his caucus would end up voting.

“Most people are going to look at the final package and see what it looks like,” he said, adding that Senate Republicans had supported the revised budget plan the governor presented in May. “Hopefully, this total package will be fairly close to that.”

Schwarzenegger met one Republican demand by agreeing not to raise taxes. But he has alienated some Republicans by not agreeing to more spending curbs and permitting the shortfalls to mushroom in future years.

“To the best anyone can tell, there’s no structural reform here,” said a Republican senator who spoke on the condition of anonymity. “Spending is not limited. So if we’re not going to fix it now, when are we going to fix it?”

The dissension was spreading to a part of the budget the administration was confident it had resolved: Schwarzenegger’s deals with five Indian gaming tribes that would produce $1 billion in new revenue.

In hearings on those deals Wednesday -- leading up to a legislative vote as early as today -- the ferocity of criticism from both parties surprised administration officials.

Lawmakers are raising concerns in the face of an intense lobbying effort from racetracks, card rooms and some Indian tribes critical of the governor’s arrangements.

After questioning administration officials during a Senate hearing about the provisions that could preclude future gambling initiatives, even one of the Republicans’ lead budget negotiators, Sen. Ross Johnson (R-Irvine), said he was unsure how he would vote on the compact.

Administration officials are downplaying the frustration in the GOP. They said the cordial, productive budget negotiations are in marked contrast to the rancor of past years.

“What is important about what is happening today is not what you are hearing, but what you are not hearing,” said Department of Finance spokesman H.D. Palmer. “If you go back to two years ago today, the kind of rhetoric in this building was suitable to a World Wrestling Federation match. Now, Democrats and Republicans are trying to work with this governor to resolve issues and get to a point where we have a budget that moves the state in the right direction.

“The fact that you don’t have Republicans and Democrats hurling verbal brickbats at each other, I think, is a testament to the fact that this governor has changed the tone and tenor of the way business is done here,” Palmer said.

Margita Thompson, the governor’s spokeswoman, said the governor is going to live up to his promise “to sign a budget that has no new taxes and is balanced.”

In hearings on the gaming deals Wednesday, lawmakers picked apart monopolies on slot machines that would be provided to the tribes.

Under the deals, even if voters approve an initiative authorizing other businesses or the state to operate slot machines, the tribes could sue to stop it.

“This contract supersedes the will of the people?” Assemblyman Jerome Horton (D-Inglewood) asked administration officials.

Daniel Kolkey, Schwarzenegger’s chief negotiator, said, “These amendments are as good as we believe we can get.” He acknowledged that the agreement would prohibit the state from any future actions that would “impair” those monopolies.

“Exclusivity was the most important objective of the tribes,” said attorney Howard Dickstein, who represented three tribes in the compact talks.

Assembly members also questioned the budget’s authorization of a $1-million payment to Kolkey’s firm, Gibson, Dunn & Crutcher. Kolkey defended the fee, saying, “I certainly believe I’m worth every penny that I’m billing.” According to administration officials, he is billing at $595 an hour.

The 255-member United Auburn Indian Community, owner of Thunder Valley casino near Sacramento, earns as much as $338 million a year on its slot machines. The compact suggests that Thunder Valley, thought to be the most successful Indian casino in the state, earns $177,000 per machine annually.

Slot machine revenue generally accounts for 80% to 90% of the profits at most casinos. The compact does not require that tribes pay the state any part of its winnings from cards or other games.

Schwarzenegger administration officials contended that over time, the tribes would pay 15% of their casino profits to the state. However, lobbyists for card rooms and racetracks said their economic analysis showed that the payments could turn out to be less than 10% and perhaps as little as 5.6%.

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Times staff writers Dan Morain, Joe Mathews and Jordan Rau contributed to this report.