Budget plans are built with fiscal tricks

A substantial number of the budget revisions that will go before the Legislature today promise no real savings or revenue and would ensure that California’s fiscal woes stretch beyond the current crisis into coming years.

The Democrat-driven plan, which on paper reduces the state deficit by $23.2 billion, contains $7.2 billion in bookkeeping maneuvers, an analysis of the proposal shows. Moves to account for billions more are one-time fixes, are sure to be challenged in court or are grounded in rosy assumptions that the Legislature’s own fiscal advisors say are unlikely to materialize.

A joint legislative committee adopted the proposals last week in lawmakers’ latest attempts to balance the state’s books. Both houses of the Legislature have scheduled votes on the package today.

Lawmakers could also vote this week on Gov. Arnold Schwarzenegger’s bid to close the deficit. His proposals include $4 billion in accounting gloss, plus $1.9 billion in borrowing, despite his declaration last week in Fresno that “the days of gimmicks and the days of denials are over -- California’s day of reckoning is finally here.”


One of the Democrats’ ideas is to issue state employees’ June 2010 paychecks at 12:01 a.m. on July 1 -- one minute into a new fiscal year -- instead of June 30. By producing 11 months’ paychecks instead of 12, the state would spend $1.2 billion less next year but would have to repeat the ploy yearly.

Another short-term patch is a Schwarzenegger proposal, approved by the joint committee, to defer $1.7 billion in school funding until the next fiscal year. School districts would still have to run state-mandated programs in the coming year, but they wouldn’t get paid until the next. The nonpartisan Legislative Analyst’s Office likened that idea to racking up credit card debt.

Such gambits would ease California’s immediate cash crunch even though they would do little to reconcile its long-term fiscal problems. Controller John Chiang has said the state won’t be able to pay all of its bills as of July 28 unless a balanced budget is adopted.

Although neither the Democrats’ package nor the governor’s is expected to pass the Legislature intact, both contain so many accounting shifts that any final budget blueprint is likely to have some as well. Years of such schemes have deepened California’s deficit, now projected at $24.3 billion -- more than a quarter of the general fund.

“We never actually fix it,” state Sen. Bob Dutton (R-Rancho Cucamonga) said of the perennial deficit.

GOP lawmakers have not offered a budget of their own.

Paper fixes

Deferrals and sleight of hand are well-trod ground in Sacramento because Democrats oppose deep budget cuts to balance the budget and Republicans resist new taxes.


“Do I think this is a good way to do business? No,” said Sen. Denise Ducheny (D-San Diego), vice chairwoman of the joint committee. But it’s necessary to save health and welfare programs, she said, and to help the state recover.

Government programs have already been pared back severely, with billions more in cuts on the docket. Department of Finance spokesman H.D. Palmer said the governor hoped “to avoid even deeper reductions” by proposing the deferral of schools money and other such maneuvers.

Schwarzenegger warned Democrats “not to add on to” his list of budgetary patches, but they did. “We just followed his lead,” said Senate President Pro Tem Darrell Steinberg (D-Sacramento).

Schwarzenegger suggested, and Democrats approved, a $1.7-billion stopgap, which would be achieved by withholding 10% more in taxes from workers’ paychecks beginning in January 2010. Workers would see larger state tax refunds the next year.


Democrats have proposed a 3% tax withholding on payments to independent contractors, who now pay their taxes quarterly or once a year. The shift would yield $2 billion in the fiscal year that begins July 1, and is the only device that lawmakers say may provide more money to the state over time, by increasing compliance with existing tax laws.

Shaky assumptions

Both proposed budgets rely on billions of dollars in revenue and savings that few experts believe will pan out.

Among them is the governor’s proposed sale of the state-run workers’ compensation insurance company to bring in $1 billion. The committee approved the move, but the legislative analyst has said such a complicated sale would be “very unlikely” to provide financial relief within a year.


Schwarzenegger’s plan also includes $1 billion in Medi-Cal cuts that would require a federal waiver. But without the waiver in hand, “you shouldn’t be counting the savings,” complained Assemblyman Jim Nielsen (R-Gerber), a member of the joint committee.

Democrats, who oppose a waiver and the cuts that would come with it, vowed to get the $1-billion savings instead by securing money they say the federal government owes California. It is unclear whether Washington would pay.

And in the state prison system, Schwarzenegger banks on saving $182 million by commuting the sentences of 8,500 of the 19,000 illegal immigrant felons and turning them over to federal authorities for deportation.

But prison and finance officials say the governor can unilaterally commute only the sentences of those convicted of a single felony -- about 3,000 inmates. Under state law, commutation for the rest would require permission from four justices of the California Supreme Court.


Lawmakers agreed to the plan but said they might change some details. The legislative analyst’s office said the state should count on saving only $50 million this way, less than a third of what Schwarzenegger and lawmakers want.

Legal challenges

Other proposals are likely to be tied up in court.

Schwarzenegger wants -- and the Democrats have accepted -- a $1-billion raid on local gasoline taxes earmarked for transportation projects. Municipal governments have reacted with howls of protest, and the governing board of the League of California Cities voted unanimously Monday to move forward with a lawsuit.


The group’s executive director, Chris McKenzie, said lawmakers and the governor are “holding their breath” in hope that such a move is constitutional.

In April, local redevelopment agencies won a lawsuit against the state over its $350-million raid on their coffers last year. But Democrats have put another attempt to siphon the funds into their latest budget plan, rewriting it in a bid to appease the courts.

The redevelopment agencies have vowed to sue again.



Times staff writers Marc Lifsher and Michael Rothfeld contributed to this report.




Shifts in accounting

Some of the proposals lawmakers plan to vote on today amount to bookkeeping maneuvers. Some examples, with dollar amounts and who is proposing them:

* Require independent contractors to pay some taxes early: $2 billion (Democrats).

* Raise income tax withholding at workplaces by 10%, to be repaid later: $1.7 billion (governor and Democrats).


* Defer some schools’ payments until fiscal 2010-11: $1.7 billion (governor and Democrats).

* Issue next June’s paychecks for state workers on July 1, 2010, pushing the expense into the next budget year: $1.2 billion (Democrats).

* Increase estimated tax payments for businesses and the self-employed early next year: $610 million (governor and Democrats).

Sources: California Legislature, California Department of Finance, Times reporting