Timing, Partisanship Trigger an Impasse

On the third day of the new fiscal year, California was still without a budget as the governor Saturday did what he does best -- leave the Capitol and go straight to voters for help.

In his maiden budget season, Gov. Arnold Schwarzenegger had defined success in simple terms. He would deliver a budget on time, with minimal rancor. By all accounts, he missed on both scores.

Undeterred, he sounded optimistic as he made public appearances Saturday in Sherman Oaks and Fresno. The idea was to put pressure on lawmakers to rejoin the negotiations, as aides in the Capitol swapped phone calls in pursuit of a compromise and big-city mayors stepped forward to call for a budget that protected their own.

“Now is the time to go and deliver,” Schwarzenegger said after a rally in Los Angeles, where he was joined by Mayor James K. Hahn, Oakland Mayor Jerry Brown and other officials. “This is what this is all about. I want to put the pressure on the legislators. Now is the time to deliver. We have now debated over it. We have talked about it. We know exactly what this is about.

“Basically, we are in agreement on the budget,” the governor said. “The only stumbling block now is the local government deal. We’re going to work through that. We’re going to work through it.”

Heading into the July 4 weekend, frustration in Sacramento was rampant. Aides to the governor conceded that the talks were at a “stalemate” -- a term used in the Gray Davis era. Each party in the Legislature was blaming the other. And both sides were blaming Schwarzenegger.

For all the infighting, experts say the governor can still salvage a deal quickly. Assembly Speaker Fabian Nunez (D-Los Angeles) was to return to the Capitol today. Budget negotiations were set to resume Tuesday.

Unlike in past years, when budget talks foundered amid deep ideological differences about whether to raise taxes or cut spending, the main sticking point this time is the comparatively narrow question of funding for local government.

Schwarzenegger is popular with voters, and his weekend roadshow echoed the strategy that helped him win passage of a workers’ compensation overhaul and ballot initiatives. He was to make more public appearances Monday in Northern California.

At the root of the current impasse is a tactical misstep that the governor made in May, according to political analysts and lawmakers.

After setting forth his revised budget, he did something rare: He sat back and waited.

Thirty-three days passed before he appeared in public to call for passage of the $103-billion spending plan. In that time, he walked a red carpet at an awards show for stuntmen. He met the prime minister of Australia. He attended four political fundraisers. And he waited for legislative leaders to come to his office and start dealing. It didn’t happen.

For a governor whose mantra is “action,” Schwarzenegger let much time pass before opening serious talks on the budget.

Once negotiations began in earnest, it was almost too late. The June 30 deadline for passage of the budget was nearing. Anxious about missing it, Schwarzenegger began offering concessions to Democrats. That angered Republicans. So the governor hurried to assuage his own party.

In the end, he was making promises to all sides -- promises that in some cases conflicted with one another. Confusion about his stance on aid to local government ran so deep that Schwarzenegger was forced to release a statement Friday clarifying his position.

“The governor has enjoyed a long and somewhat fruitful honeymoon,” said Assemblyman Joe Canciamilla (D-Pittsburg), a member of the Legislature’s bipartisan caucus. “But the governor likes to win. He likes to have a deal. Unfortunately, the goal of getting a deal overshadowed the quality of those deals in some cases.”

Schwarzenegger’s camp had expected the process to be easier. He was confident when he took the stage in the secretary of state’s auditorium in May to explain his revised budget.

He had spent much of the winter and spring privately arranging side agreements with some of the most powerful interest groups in California: mayors, school administrators, county officials and university chancellors.

All consented to deals that followed much the same pattern: spending cuts that would come now, in return for a commitment for more money down the road.

“We wanted some promise that in the future there would be stability -- an increase in funding. And the governor provided all of that,” said Charles B. Reed, chancellor of the California State University system.

The higher education deal was announced with a flourish. Schwarzenegger appeared with university chancellors for a news conference in the Capitol, with actor Rob Lowe watching in the background.

But the hard work wasn’t done.

Lawmakers dissatisfied with the side agreements reopened them, making them part of the budget negotiations.

Nunez kept a running flip chart in his spacious corner office, with jottings in black magic marker that showed the sums of money he wanted to restore to higher education. He would grab the charts, fold them under his arm and trundle back and forth between his and Schwarzenegger’s office, bargaining for more aid to schools as the deadline that was so important to the governor came and went. Schwarzenegger wound up restoring tens of millions of dollars in proposed cuts to higher education.

He had “assumed the separate deals he was cutting with the large constituencies would override deep-seated ideological differences, and they didn’t,” said Barbara O’Connor, director of the Institute for the Study of Politics and Media at Cal State Sacramento. “It didn’t really supplant the need to know what barriers there were, from the elected officials’ point of view. And I think he put that off a little too long.”

For Schwarzenegger, completing a budget on time would have been perhaps the most compelling proof to date that he was imbuing Sacramento with a new bipartisan spirit.

But that goal was not nearly as important to the Legislature. Senate Democratic Leader John Burton (D-San Francisco) repeatedly said that it mattered less to him when the budget passed than what was in it.

In pressing for a deal, Schwarzenegger must wrest a consensus from Republicans and Democrats who may be more interested in pushing their agendas than approving a budget.

“If the governor made a mistake, it was underestimating the institutional resistance in the Legislature to punctuality,” said Dan Schnur, a Republican political consultant close to the Schwarzenegger administration. Once lawmakers saw “how much he wanted an on-time budget, they started to use it as leverage to get concessions.”

There were many. Schwarzenegger backed off steep cuts in government employee pensions. He got only modest give-backs from state workers. He restored welfare cost-of-living money. All of those moves worsened the multibillion-dollar shortfall the state faces in future years.

The governor’s early budget proposals in January “for the most part have been jettisoned in the process of the last few weeks,” said state Sen. Charles Poochigian (R-Fresno).

Assemblyman Keith Richman (R-Northridge) said: “I’m concerned with the direction the budget is taking.... The more that the proposals in the May budget are changed or reversed and move us further away from resolving the long-term structural deficit, the less inclined I am to vote for this budget.”

When Republicans balked, Schwarzenegger sought to placate them by removing from the budget millions of dollars in fees.

He was maneuvering so quickly that, when it came to the subject that has gotten in the way of a final agreement -- funding for local government -- he left the impression he was on both sides of the issue.

As one of his side deals, Schwarzenegger had persuaded cities and counties to accept a $2.6-billion cut over two years in exchange for guarantees that their revenue would be protected down the road.

But Democratic leaders didn’t like the deal. They feared it would hurt the state during financial crises, putting local revenue off limits at the expense of state programs. So Schwarzenegger aides worked quietly with lawmakers to craft a compromise. In a conference call Thursday, the governor told various mayors that he had reached “an agreement” with legislators on the issue “in order to pass the budget,” according to several mayors who took part in the call.

That left cities and counties feeling betrayed by the governor.

There was a similar muddle over his negotiations with tribes. Schwarzenegger recently signed an agreement giving five Indian casinos expansion rights in return for payments to the state that are important to the budget. In those agreements, unions have the right to organize on tribal land.

As Schwarzenegger negotiates with more tribes, Democrats want him to stick with the union provision. Some Republicans would like him to drop it. Each side believes it has a commitment from Schwarzenegger.

“I would not be able to support future compacts if they don’t contain labor provisions,” said Assemblyman Joe Nation (D-San Rafael). “I have received assurances from the governor’s office that these would apply to future compacts.”

But the Republicans got a letter from the governor Thursday, hand-delivered by his chief of staff, Patricia Clarey, that leaves more flexibility on the union issue.

Nearly eight months into his term, Schwarzenegger has passed ballot measures and ushered in a revamping of workers’ comp. Those efforts were important tests of his political skill, but not nearly as delicate as passing a budget, according to analysts, and a stumble may have been predictable.

“This has been a trial by fire,” said Darry Sragow, a Democratic political consultant who helped pass Schwarzenegger’s borrowing and balanced budget initiatives. “No way anyone going into this for the first time would be able to appreciate the complexities.

“He’s proved extraordinarily good at forging compromises, being pragmatic and meeting people halfway,” Sragow said. “And all of these skills are, all of a sudden, not necessarily enough to get the deal done. Because in this setting, there are almost an infinite number of moving parts.”

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Times staff writers Evan Halper and Robert Salladay contributed to this report.