Schwarzenegger eager to sign budget, stump for measures

State lawmakers Thursday finally ended the three-month stalemate that brought California to the brink of financial collapse -- but now it is up to voters to keep the budget package from unraveling.

The spending plan, which wipes out a nearly $42-billion projected deficit with tax hikes, deep program cuts and borrowing, hinges on $5.8 billion contained in several ballot measures that voters must approve in a special election May 19. Gov. Arnold Schwarzenegger is expected to sign the package today.

There are any number of reasons voters may not cooperate. The four temporary tax hikes in the budget are substantial and the ballot proposals would prolong them. Polls show that voter disgust with the Legislature has reached all-time highs. Some well-funded special interest groups are already plotting campaigns against the measures.

"Given how disaffected voters are and how really disgusted they are, you might find all the ballot measures could get swept away," said Democratic strategist Darry Sragow.

Voters will be asked to wrest money from mental health services, children's programs and future lottery receipts. They will be offered the opportunity to constrain future state spending -- but only if the tax hikes just passed stay in place for four years instead of two. The failure of one or more of these measures could reopen a deficit.

Lawmakers and the governor are already looking nervously toward the campaign for the measures, even as they breathed a sigh of relief Thursday when the Legislature, in lockdown for a third straight day, finally passed a budget. The plan's approval halts the state's slide toward insolvency and allows officials to once again begin paying tax refunds, vendors and public assistance recipients, though those checks could be delayed several more weeks.

"It is very important we start campaigning now," Schwarzenegger said at a Capitol news conference. Earlier in the day, he took down the clock outside his office that counted how much money the Legislature's inaction on the budget was costing California.

The governor's office immediately told road builders and local transit agencies to resume stalled construction projects. Administration officials said the budget deal may avert some of the 10,000 layoffs the governor began to implement a few days ago, but the administration is not rescinding pink slips.

The budget would temporarily raise the state sales tax, starting April 1, by 1 cent on the dollar and nearly double the vehicle license fee, to 1.15% of the vehicle's value. The package would increase personal income tax rates by 0.25 of a percentage point. A 12-cent-per-gallon increase in gasoline taxes that was initially part of the package has been eliminated -- replaced with federal economic stimulus money. The dependent credit taxpayers can claim would be reduced by $210.

An average family of four with an annual income of $75,000 would pay about $963 more a year in taxes, according to a legislative analysis.

The majority of GOP lawmakers had tried to block the increases, which would remain in effect for two to four years.

Howard Jarvis Taxpayers Assn. President Jon Coupal predicted "the beginning of a new California tax revolt. . . . Our phones are ringing off the hook. People are upset."

Those Republicans who did vote for the plan were enticed by roughly $1 billion in tax breaks for businesses. They include tax credits for film companies that keep their productions in California and small businesses that hire new employees. And the GOP lawmakers were wooed with $100 million in tax credits for buyers of new homes and millions of dollars in subsidies for horse racing tracks.

The restraints on government growth that voters will consider in May were also key to winning support from Republicans, who have been pushing such a policy for years. The ballot measure would force the state to sock away in a rainy-day fund revenue windfalls created by good economic times.

The six Republicans who voted for the plan were also satisfied by cuts in government spending that would be deep and long lasting.

For the approximately 16 months through June 2010, the plan reduces spending by $14.8 billion.

Schools and community colleges, which account for nearly half of all state spending, would take among the biggest hits, along with state colleges and universities, where tuition has been steadily rising for years. Public assistance and transit programs would be scaled back considerably.

Those concessions made by Democrats were still not enough to secure all the GOP votes they needed. So about midnight Wednesday they made one more big one.

They met the demand of Sen. Abel Maldonado of Santa Maria to rewrite election rules that he said had allowed the Capitol to become paralyzed by partisanship, leading the state to the brink of financial ruin.

Democrats initially said Maldonado's call for "open" primaries was too substantial to be pushed through in a budget deal. But Maldonado said the current budget stalemate proved that California could not return to fiscal sanity without fundamental changes in the way it elects its representatives.

Modeled on election rules in Washington state, the change -- if approved by the California electorate next year -- would allow voters to cross party lines and would have candidates of all parties competing in the same primary, followed by a runoff of the top two vote-getters. The plan would not apply to races for governor.

Maldonado's proposal would undermine the influence of political parties and was unpopular with Democrats, but their leaders pressed them to accept it as the price of ending the political logjam.

The rank and file expressed anger nonetheless. They objected to rewriting California's fundamental rules of democracy in the middle of the night, all to secure a vote to keep the state from financial ruin. They also accused Maldonado, who is in his last term in the Senate, of trying to leverage his budget vote to make a future statewide run easier.

Some Democrats were so resistant that the Senate had to recess while they were talked into giving their support. Near tears, Sen. Gloria Romero (D-Los Angeles) called it "a disgusting process" and "not good government" as she changed her vote on the open primary to yes.

Art Torres, chairman of the California Democratic Party, said the organization will work to defeat the open primary measure, which would be on the ballot in June 2010 and has strong support from the governor.

"Basically Maldonado's name should be 'extortionist,' " Torres said. "This is not good for democracy."

The spending restraints proposal that would come before voters in May could prove to be the biggest challenge.

The curbs in spending are likely to appeal to voters, analysts say, but they can only be enacted if the tax hikes are extended from two to four years.

The Jarvis association is among the groups considering a campaign against the plan.

Another proposal that would be voted on in May threatens to plunge the state deep back into the red.

It calls for borrowing some $5 billion against future lottery revenues. Assembly Speaker Karen Bass (D-Los Angeles) has expressed concern that may not go over well with voters, who are reluctant to tamper with lottery proceeds now earmarked for education, even if the proposal ensures schools still get their money.

Mental health and early childhood education advocates, meanwhile, are gearing up to protect their funds.

Ballot measures planned for May would take as much as $830 million from those programs in 2010 plus hundreds of millions annually in the following four years.

If the fund raid is rejected, it means more red ink for the state.

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jordan.rau@latimes.com

evan.halper@latimes.com

patrick.mcgreevy@latimes.com

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Times staff writer Marc Lifsher contributed to this report.

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(BEGIN TEXT OF INFOBOX)

Erasing the deficit

The budget passed by the Legislature contains new taxes, spending cuts and borrowing. Some provisions require voter approval, but most would take effect in the next few months.

TAX HIKES

Vehicle license fee nearly doubles to 1.15%

Sales tax rises 1 percentage point

Income tax rises 0.25 of a percentage point

Dependent tax credit is reduced by $210

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SPENDING CUTS*

$8 billion from public schools, community colleges

$567 million from grants to disabled and blind

$1.4 billion from state worker salaries and overtime

$787 million from state colleges, universities

$460 million from public transit

$185 million from programs for the developmentally disabled

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TAX BREAKS

$690 million for multistate/multinational companies

$200 million for small businesses hiring new people

$100 million for Hollywood production companies

$100 million in credits for people buying new homes

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VOTER APPROVAL NEEDED

Taking $226 million intended for mental health programs

Taking $608 million from programs aimed at children 5 and under

Cap to restrict future state spending

Borrowing $5 billion against future lottery proceeds

Making technical changes to educational funding formulas

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*A partial list. In addition, cuts would be larger if federal stimulus money did not materialize as expected.

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Source: California Legislature, Times reporting

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It looks like a wash on taxes

Tax credits in the federal stimulus may come just in time to pay for California's new levies. PAGE A21

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Capitol Journal

George Skelton writes that Sen. Abel Maldonado is the big winner. PAGE A21

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Aid for Hollywood

The new budget includes tax incentives for film and TV shoots. BUSINESS, C1

For The Record Los Angeles Times Monday, February 23, 2009 Home Edition Main News Part A Page 2 National Desk 2 inches; 76 words Type of Material: Correction California budget: An article in Friday's Section A about the passage of the state budget said that the "open" primary election system approved by lawmakers -- which would allow voters to cross party lines and would have candidates of all parties competing in the same primary -- would not apply to races for governor. If it is approved by voters next year, the open primary system will apply to gubernatorial contests but not to presidential elections.
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