Accord on Gaming Clears Way for Budget

Suppressing a budding rebellion in his own party, Republican Gov. Arnold Schwarzenegger announced through aides late Thursday that he expected to have an agreement on a new state budget by today.

The surprise announcement came Thursday evening as the Legislature approved $1 billion in casino gambling agreements with Indian tribes. State leaders broke up for the night with the wording of a section on cutting assistance to local governments still to be perfected this morning.

The breakthrough came as support for the governor’s fiscal policy was beginning to erode among his GOP colleagues, who complained that he was cutting them out of negotiations over state spending and conceding too much to Democrats.

Until mid-evening, Schwarzenegger had had trouble getting enough Republican support to ratify a key part of his budget plan -- compacts that he reached with Indian gaming tribes that would bring more than $1 billion to the state. On an initial tally, Schwarzenegger was one vote short of the two-thirds majority needed in the Senate to ratify the gambling agreements.

Republicans said they objected because the pacts were written in a way that would force unions upon Indian casinos.

After Senate Leader John Burton (D-San Francisco) suggested flying in an absent member from Inglewood to push the measure over the top, Sen. Liz Figueroa (D-Fremont) cast the deciding vote in the governor’s favor.

The Assembly passed the tribal agreements a short time later.

In announcing that a $103-billion budget deal was at hand earlier in the day, Schwarzenegger communications director Rob Stutzman was dismissive of the Republican grumbling. “They just tend to be so negative,” he said.

“Have you ever heard of a legislator being excited about the budget?” he asked. “It is the ultimate stew of compromises. This year, there is a governor who is bringing them together, knocking heads when need be, pacifying them when need be. That ultimately is going to get us a budget much sooner than we have seen in the recent past.”

The mood in the Capitol had been more pessimistic earlier. Republican leaders had said an agreement was days away.

“I don’t want a handshake agreement,” Assembly Republican Leader Kevin McCarthy of Bakersfield said. “I want an honest agreement.... How can you sit down in two hours and say everyone agrees?”

On the Senate floor Thursday, Republicans hinted that their resistance to the governor’s tribal gaming compacts was rooted in their frustration with his overall dealing on the budget. Asked if that was the case, Sen. Rico Oller (R-San Andreas) said, “Maybe there is some truth to that.”

When it comes to Republicans, he said, “there hasn’t been nearly enough participation with respect to the budget.”

Republicans were also unimpressed with a deal the governor announced with state prison guards Thursday. Instead of extracting $300 million in salary by blocking a planned pay raise, he struck a deal with the union that would save the state $108 million over two years. The guards would still get most of their raise, though it would be broken into two parts.

The resistance forced the governor to expend significant political capital on an issue that was supposed to be an easy win for him. The difficulty Schwarzenegger had in selling the compacts with five Indian tribes to his own party seemed to cast doubt on his ability to forge a budget deal.

The compacts would generate $1.2 billion for transportation spending by borrowing against the tribes’ credit standing. In return for that and an annual share of gambling revenue, the casinos would be allowed an unlimited number of slot machines -- a key revenue draw.

By midday, the governor was calling small groups of Republicans into his office in the hopes of persuading them to vote with him. His legislative aides scurried through the Capitol to line up GOP support. And a few of his top aides made pleas to the Senate and Assembly Republican caucuses as lobbyists opposed to the gaming deal sought to pick off Republican votes one by one.

After the agreements were finally ratified, the governor issued a statement saying that “This is a fair deal for the tribes and the state,” and that he would work to defeat two competing gaming initiatives on the November ballot.

The budget Schwarzenegger unveils is expected to be drastically different than the fiscally conservative spending plans he presented in January and May, which included deep program cuts in nearly all areas of government and major concessions from state employees.

Under the pressures of negotiation, the governor abandoned many of those cuts, opting instead for more borrowing.

Schwarzenegger agreed to increases in social service programs and restored tens of millions of dollars in higher education spending. He retreated from proposals to cut the pensions of public employees and take away their raises. And he relied heavily on borrowing to avoid cutting deeply into programs dear to Democratic constituencies.

But in appeasing the Democrats, Schwarzenegger ended up alienating members of his own party. Republicans are pleased there are no new taxes, but many expressed concern that there was so much borrowing in the budget that new taxes would be all but inevitable next year.

In the absence of future tax increases or draconian spending cuts, they fear major budget shortfalls are virtually guaranteed.

So far, none of the significant reforms that Schwarzenegger has promised in how government does business have materialized.

Administration officials say they need time. By next month, they say, they will be ready to present a plan to reorganize Medi-Cal, the state’s healthcare program for the poor, in a way that will save $400 million annually. Even sooner than that, the governor will be presented with a proposal, thousands of pages long, for streamlining government and making it run more efficiently.

But lawmakers of both parties are dubious about how far those efforts will go in closing multibillion-dollar budget shortfalls projected to re-emerge next year and in 2006 as a result of all the borrowing and fiscal Band-Aids in the upcoming spending plan.

According to some Republican estimates, the budget the governor says he is about to sign will result in a deficit of more than $10 billion in 2006.

Schwarzenegger overcame Republican resistance to his budget and Indian gaming agreements through last-minute compromises.

For one, he dropped his support for as much as $200 million in new fees on logging companies, corporations that pollute the water, and other businesses.

On the gaming issue, the governor said he would not use the agreement reached with the five tribes as a strict model for any future compacts he might negotiate with the scores of other tribes in the state.

Schwarzenegger’s chief of staff, Patricia Clarey, hand-delivered a letter from the governor to Senate Republican Leader Dick Ackerman (R-Irvine), saying tribes that sign gaming agreements with the state in the future “will be free to seek a compact without terms compelling union representation of their workers.”

The one-page letter appeared to lift the last obstacle to approval of the gaming deals.

“If the administration was jamming the union issue through, then that would cause me some concerns,” said Assemblyman Ray Haynes (R-Murrieta). “It appears they are not doing that.”

Times staff writers Robert Salladay and Joe Mathews contributed to this report.