Standoff on State Budget Continues

The state was expected to begin the fiscal year Friday with no budget in place, as Republican legislators continued to withhold the nine votes needed to approve it.

State Controller Steve Westly said the standoff will force him to begin withholding $770 million owed in July to schools, community colleges and businesses that provide services to the state.

“This is a big problem,” Westly said. “It will create real hardships, and they will only increase as the summer goes on.”

The latest version of a $116.6-billion Democratic spending proposal is expected to be defeated in both the Assembly and Senate today. The measure meets most of Gov. Arnold Schwarzenegger’s demands, and spends one-half of 1% more than the governor’s draft budget. Republicans said that was too much and that they would not provide the votes needed to pass the Democratic plan.

Budget analysts said most organizations that rely on the state for money can weather a few weeks without a budget. But if a stalemate were to extend beyond that, the effect could become serious, as $2.6 billion in scheduled payments for August would be withheld.

Some healthcare providers said a state reserve fund to pay doctors who provide care for the poor when there is no budget could dry up by late next month. If a stalemate were to continue through August, school budgets could be thrown into chaos, with some schools unable to move forward with planned hiring, construction and purchases.

Community college officials said their institutions would suffer severe consequences too.

“If there is still no budget by mid-August, we’re concerned that some districts may not be able to open for the fall semester,” said Scott Lay, vice president of the Community College League of California.

Administration officials said they could not support the Democrats’ proposed budget because it included too many ongoing programs the state would be unable to afford in future years.

“You are not doing your job if you don’t recognize these same problems are going to come back ... in a year,” said Finance Director Tom Campbell.

Schwarzenegger supports a constitutional spending restraint that would limit how much the budget could increase each year. That measure will go before voters in the Nov. 8 special election, but it is polling poorly, with just 35% of voters supporting it in a Field poll released this month.

The Field poll had more bad news for the governor Wednesday, when it showed that 57% of registered voters would not support him for reelection. The poll reported that Schwarzenegger would lose to Democratic gubernatorial candidates Westly and state Treasurer Phil Angelides in head-to-head contests.

Democrats, meanwhile, accused the governor of holding up the budget to pressure them to agree to some elements of the spending-restraint measure. Under such a compromise, Schwarzenegger would abandon the original initiative and the compromise would appear as a separate measure alongside the original in November. Democratic sources close to negotiations said the governor and Campbell demanded as much in tense talks with legislative leaders Tuesday.

The demand, they said, came days after the governor had vowed not to link budget talks with ballot measures.

Campbell would not say whether the administration was insisting that a budget deal include a compromise on the ballot initiative. But on Wednesday, he said, “What it is missing is a mechanism for preventing the [deficit] problem from coming roaring back.”

Democrats countered that the governor’s budget uses one-time revenue to pay for ongoing programs, and would leave the state with a shortfall of about $5 billion in fiscal 2006-2007. The Democratic plan would create a $5.5-billion shortfall for that year.

“I don’t think Republican legislators want a budget,” said Assembly Speaker Fabian Nunez (D-Los Angeles).

Republicans said they were holding out for spending cuts. The governor has demanded a one-third cut in the wages of workers who help the disabled in their homes, elimination of the state’s $469-million annual payment into the teachers’ pension fund and a $408-million cut in government workers’ pay.

Budget analysts said the proposal to eliminate the pension payment and cut state worker salaries would run afoul of the state Constitution, as well as binding contracts with public employee unions.

Administration officials said it was more important to get the budget right than to get one on time. “Until there is an extended delay, the average citizen is not concerned,” said Senate Republican leader Dick Ackerman of Irvine. “They don’t mind, as long as we get a budget in the next week or two.... Better a good budget a week or so late than a not-good one on time.”

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Budget impasse’s consequences

Controller Steve Westly said Wednesday that without a new budget in place by Friday, the state would withhold a number of payments in July, including:

* $177 million for K-12 school districts, including special, adult and remedial education programs

* $233 million for community colleges

* $191 million for vendors

Los Angeles Times