Budget Deal So Close, So Elusive

Twenty-two days into the budget stalemate of 2004, there seemed -- yet again -- a breakthrough.

Assembly Speaker Fabian Nunez, who had hurt himself playing pickup basketball, limped out of a meeting with Gov. Arnold Schwarzenegger on Thursday and said a “handshake” agreement could come within 48 hours.

So a brewing crisis would be resolved. School payments would flow uninterrupted; government would keep running. A budget that was three weeks late would finally be signed. Right? Not so clear.

While Nunez was speaking, a Schwarzenegger aide took notes nearby and alerted the staff to what he was saying. Minutes later, the governor’s spokeswoman, Margita Thompson, emerged to say there was no deal.

“I’m beginning to wonder if the speaker is watching a different movie,” Rob Stutzman, Schwarzenegger’s communications director, said that night.

Back to the negotiating table they went.

It wasn’t supposed to be this way. Last year, the budget delay was rooted in nearly irreconcilable differences over questions of ideology: Should the state balance the budget by raising taxes or cutting spending? Ultimately, it took a marathon, 30-hour Assembly session to work out a deal. The budget was finally signed Aug. 2.

In contrast, the line between Republicans and Democrats this time is unusually thin. Schwarzenegger has refused to raise taxes and he’s borrowing billions to avoid the deep spending cuts the Democrats oppose.

Throughout, the two sides have seemed tantalizingly close -- bickering, for example, over the precise percentage of votes needed for the Legislature to borrow money from local government in future years. Should it be a two-thirds vote? Three-fourths? Four-fifths? Something in between?

Still, the impasse is in its fourth week -- stretching out nearly as long as the one last year. Deals start to gel, then collapse when an interest group or faction within the parties says it is unhappy.

Those who depend on state revenue are getting antsy.

If California doesn’t complete a budget by Wednesday, the state will be prohibited by law from making its monthly payment of $200 million to community colleges.

Most of the schools can afford to miss one payment by borrowing from reserves and using some accounting shifts. But many don’t have the money to keep their doors open if the August payment is missed too. So, the Community College League is working on a strategy to take out a large loan to keep the schools afloat into the fall.

Building a coalition to pass a budget is a balancing act.

The state’s Constitution requires that budgets pass by a two-thirds vote. That means 54 votes in the Assembly, 27 in the Senate. Though Democrats hold majorities in both houses, they can’t reach the two-thirds mark without at least a few Republicans voting with them.

Any move can cost votes. Add to the budget something that the Republicans want, and Democrats are apt to balk. And vice versa.

An aide to the governor cites as an example an agreement in which both parties purged from the budget tens of millions of dollars in timber, water and landowner fees supported by environmentalists. Republicans wanted the fees scuttled; Democrats had wanted to preserve them.

The choice was a tough one. Keep the fees in the budget and 10 or 15 Republican votes might peel off, the aide said. In the end, Schwarzenegger got rid of the fees, appeasing Democrats by giving them something they deemed more important: additional aid for higher education and social services.

“The way you pick up Democratic votes is expand some of the social programs,” said the aide, speaking on condition of anonymity. “That’s where you win.”

But agreements have been slow in coming.

On July 1, the first day of the new fiscal year, Stutzman said the elusive “handshake” could come that night. The governor was even preparing a late-night appearance in the Capitol to announce the deal. All very promising.

Then things started to unravel. The deal hinged on a plan for financing local government -- a plan detested by the mayors and county officials who wield considerable clout in Sacramento.

“We’re agreeing to give the state $1.3 billion this year,” said Los Angeles Mayor James K. Hahn, one of the lead negotiators on behalf of cities. “We’re agreeing to give another $1.3 billion the year after. But then we want very tight restrictions on their ability to take money from local government again.”

Back to the table.

When it seemed as if the barriers to a budget had shrunk to that one issue, two others popped up. One would repeal a law that requires school districts to pay bus drivers union wages. Another involves the terms under which people can sue their employers.

“It chases businesses away from California,” Schwarzenegger said of the law he calls “Sue your boss.” “ ... Anyone can sue their boss without warning.” The Legislature, he said, must “get rid of that bill.”

Back to the table.

In the last two weeks, the twists in the budget talks have been dizzying. Progress one day, despair the next. On July 14, the governor met with sheriff’s deputies in Sacramento. He later told reporters: “We’re very close ... “

The next day he called a news conference and delivered an update: “ ... there’s chaos here.”

Then he left the Capitol for a weekend blitz of rallies in which he labeled his legislative opponents “girlie men.” That would set back the budget talks two weeks, Senate Democratic leader John Burton said Monday.

Maybe not. The next day, leaders from both parties met and announced that they were nearing a compromise in the bus-driver quarrel. Schwarzenegger appeared at a restaurant in San Diego the following day. No insults this time. The governor said he was “very optimistic” that a deal was close.

Or was it? On Thursday, the predicted agreement over the bus issue didn’t happen -- a casualty of mounting mistrust between Democratic and Republican leaders in the Assembly.

Undeterred, Burton said that day, “We’re making progress left, right and center.”

Not enough, apparently. On Friday, Burton was back home in San Francisco.

Times staff writer Evan Halper contributed to this report.

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Budget watch

25 Days Late

Saturday: No major breakthroughs in negotiations over the proposed $103-billion budget.

Today: The governor is expected to campaign on the road to get voters to pressure lawmakers for passage.

Quote: “He’s campaigning around the state essentially asking the people to give him a win on the budget, when in fact he ought to be here doing what he was elected to do: Get a balanced budget that restores the state’s credit rating.” -- State Treasurer Phil Angelides

Los Angeles Times