State Budget Talks Crumble

Just hours after Gov. Arnold Schwarzenegger said he was about to reach a budget agreement, negotiations collapsed Friday amid an angry uprising from cities and counties charging that Schwarzenegger had broken a promise to protect their funding.

Local government officials became infuriated when Schwarzenegger appeared to have retreated from a deal he struck with them to get help in fighting the budget’s deficit: If they let the state take back $2.6 billion over the next two years, he would protect them against cuts in the future.

During negotiations with legislative leaders earlier in the week, the governor had worked out a compromise with Democrats that would allow the state to raid city and county funds during fiscal emergencies nevertheless. The details became clear only Thursday night.

By Friday morning, it had proved to be a huge political miscalculation.

Calls from local leaders flooded the Capitol. Republican lawmakers demanded the compromise be scrapped. And e-mail inboxes across the state filled with messages like this from Beverly Hills City Manager Roderick Wood, who also is president of the city managers department of the League of California Cities:

“It appears the morally insane in our state Legislature have moved into a full court press to [expletive] cities again,” Wood wrote to the state’s 460 other city mangers. “No surprise as we are being led by some of the greatest mental midgets of our times.”

By the end of the day Friday, the governor had abandoned the compromise with Democrats, was back to supporting his original plan and announced that he would be holding rallies starting today in Los Angeles to pressure lawmakers into passing it.

The confusion threw talks over his proposed $103-billion budget into disarray.

“At this point, I don’t know who to believe,” said Assemblyman Joe Canciamilla (D-Pittsburg). “I’m just concerned where we are on the budget. It looks like the wheels are coming off.”

“I have to say, at least on our side, there was a broad assumption there would be a budget by the deadline,” he said, referring to the July 1 start of the fiscal year. “The further past the deadline we go, the more complicated this is going to be, and the more problematic individual pieces are going to be -- like local government.”

After some heated partisan exchanges Friday afternoon, both the Assembly and Senate adjourned for the weekend.

Schwarzenegger issued a written statement urging lawmakers to return to Sacramento to continue work on the budget, while one aide declared that negotiations had entered a “stalemate.”

“We should not allow months of real progress to be stalled so close to the finish line,” Schwarzenegger’s statement said. “The issues that separate the two parties are no more significant than the obstacles we have already overcome.”

The breakdown began to unfold just after the governor’s communication director, Rob Stutzman, held a news conference Thursday night to say Schwarzenegger expected to have a final budget deal in place any moment.

Then the governor hopped on a conference call to brief big-city mayors about his agreement with Democrats.

After hearing the governor out, Fresno Mayor Alan Autry suggested that Schwarzenegger tell the Senate’s Democratic leader, President Pro Tem John Burton (D-San Francisco), to “go kiss my [expletive].”

“The tea has gone in the harbor for local governments,” Autry said in an interview Friday. “This is an issue that has been building for 20 years. I issue this challenge to people who would oppose this reform: Let’s get it on.”

Republicans quickly capitalized on the discord, calling on Democrats Friday morning to put the original deal up for a vote.

“I just want to know if it’s dead, who killed it,” Sen. Jim Brulte (R-Rancho Cucamonga) said of the original local governments plan during a morning floor debate.

Burton angrily interrupted him: “I did.”

By midday, the governor sent out a statement calling on lawmakers to pass his original agreement with cities and counties. And later Stutzman, too, was demanding an immediate floor vote on the earlier agreement.

“We’ve hit a point here where, for some reason, we’re not going to let the sunshine in and put an idea up for a vote to see if the votes are there or not,” he said. “That doesn’t sit well with” the governor.

Stutzman denied that the governor himself had flip-flopped.

He said Schwarzenegger’s staff had worked with Democrats to come up with the alternative but, upon showing it to local governments, determined that “there was no support for it.... We haven’t shifted to another horse.”

Democrats, meanwhile, said they will not simply line up behind the governor and accept the original plan.

They say the proposal would cost them financial flexibility in the future and could come at the expense of education and social services.

“We are trying to work out an agreement with them,” Burton said. “We think we’ve agreed on an amount of money. But we feel there has to be an escape clause.

“We want to limit what can be taken from local governments, but there ought to be some way of suspending it in a fiscal emergency,” he said.

Assembly Budget Committee Chairman Darrell Steinberg (D-Sacramento) said, “It is pretty amazing to me that anybody thinks we would rubber-stamp this, especially because it involves amending the Constitution and could have implications for 20 years to come.”

In Los Angeles, local officials were already plotting to rally behind a November ballot initiative that would protect their funding when Schwarzenegger retreated to the deal he had initially worked out with cities and counties.

Mayor James K. Hahn said Schwarzenegger called him Friday afternoon and encouraged him to come to Sacramento with other mayors to put pressure on the Legislature.

In a longer conference call with Hahn and nine other mayors later in the day, there was talk of rallies.

“I was very much encouraged by his call,” Hahn said.

Los Angeles County Supervisor Zev Yaroslavsky questioned why the governor even attempted to cut a separate deal with Democrats.

“This is what happens when you carry on important government business in total secrecy,” he said. “No one in local government had a clue what was going to happen until 7 p.m. [Thursday night]. If they had had any communication, they could have avoided this embarrassing situation.

“I hope everyone up there steps back a pace, because this is no way to run a government,” Yaroslavsky said.

Halper reported from Sacramento and Levey reported from Los Angeles. Times staff writers Joe Mathews, Robert Salladay, Peter Nicholas and Jason Felch contributed to this report.