A flurry of deals delays state budget

State lawmakers were moving Thursday night to bring California’s longest-ever budget impasse to a close — but not before stuffing their spending plan with last-minute favors for special interests.

As the final votes on the budget loomed, legislators were engaged in a furious round of horse trading, according to lawmakers and staff involved in the deal-making. As legislative leaders rounded up votes, they added provisions that would boost the bottom lines of online travel companies and an ethanol firm founded by a close ally of the governor. They drafted language that could allow the city of San Diego to use more redevelopment money to facilitate a new NFL stadium for the Chargers.

Democrats pushed legislation to address an element of alleged corruption in Bell, where the city was reported to be making money by towing the cars of sober immigrants from DUI checkpoints if they did not have proper ID. The proposed law change would prohibit that practice.

“This is the money that fueled their corruption,” said Sen. Mark Leno (D-San Francisco).


It was unclear whether all the special provisions would survive the night. But the flurry of deal-making delayed passage of the bipartisan $87.5 billion general fund plan, the foundation of an overall $125.3-billion budget that would avoid broad new taxes and deep program cuts by pushing the bulk of the deficit into next year.

The package included 21 separate bills, which were brought up in fits and starts in between negotiations on the last-minute proposals.

“Everything in the budget is give-and-take,” said Senate Leader Darrell Steinberg (D-Sacramento).

Before Thursday, legislative leaders and the governor had already signed off on tax breaks that activists said amounted to giveaways for a timber company, cable companies and software firms. Those proposals, along with the one that would benefit online travel companies by changing a tax calculation, were drafted at the insistence of Republicans. GOP members are a minority in the Legislature, but some of their votes are needed to pass a budget, which requires two-thirds approval.


The core budget bills were made available to lawmakers only hours before scheduled votes, and some legislators expressed frustration that they were not able to sort out all the details of the bills.

“I simply can’t vote under these circumstances,” said Assemblywoman Diane Harkey (R-Dana Point).

Among the potential beneficiaries of the late scrambling were travel websites such as Orbitz, Travelocity and Expedia. GOP lawmakers were championing their bid for a tax break; cities and counties were warning that such a move would deny local governments tens of millions of dollars in hotel taxes each year.

The travel companies are seeking to change how a levy called the Transient Occupancy Tax is calculated. Instead of a tax on the full amount they charge for a hotel room, the online firms would pay tax only on the amount they pay the hotel for the room — typically much less than what they charge the customer.


On Thursday, according to lobbying memos obtained by The Times, the websites were directing a behind-closed-doors lobbying effort to slip a measure “clarifying the law” in their favor into a budget bill written by Senate Republican leader Dennis Hollingsworth of Murrieta.

“This would rob local cities of millions of dollars of tax revenue and line the pockets of online companies at taxpayer expense,” said attorney Raymond Boucher, whose firm represents Los Angeles, Long Beach and other California cities.

Another budget provision was being extracted for a struggling business founded by former Secretary of State Bill Jones, a political ally of and campaign contributor to Gov. Arnold Schwarzenegger.

Jones’ firm, Pacific Ethanol, would be relieved of a requirement to meet strict environmental standards by a change quietly inserted into budget legislation Wednesday. According to state energy officials, the requirements are part of a deal in which the company agreed to secure millions of dollars in government subsidies that helped rescue it from bankruptcy. They call for the firm, which uses corn to make the gasoline additive ethanol, to significantly reduce its carbon footprint within four years.


But a last-minute change to the statute would allow the carbon reduction requirement to expire in two years, essentially letting Pacific Ethanol, and three smaller firms that qualify for the subsidy, off the hook. Administration officials said the change was the idea of Assembly Democrats.

Shannon Murphy, spokeswoman for Assembly Speaker John Pérez (D-Los Angeles), said, “I can tell you emphatically that any assertion this was the speaker’s idea is laughable.” She added that whenever the speaker’s office got calls about the subject, they “came from the administration.”

Another last-minute proposal making the rounds would allow the city of San Diego to fast-track some redevelopment spending. It was still being worked out well into the evening Thursday, when the spending blueprint was already 99 days overdue.

The plan would defer many hard choices and employ optimistic revenue assumptions and accounting maneuvers to paper over the deficit. It assumes, for example, that the state would receive billions more in federal assistance than most experts believe is realistic.


And the package includes $2 billion in internal borrowing — a mere shifting of funds that would have to be replenished later. In another accounting move, nearly $2 billion more in payments to schools and community colleges would be pushed into the next fiscal year.

Amid the gimmicks, lawmakers proposed some cuts in state spending. The budget would essentially freeze money for schools, suspending voter-approved funding guarantees. State buildings would be sold off and leased back. Workers in the state’s in-home care program would get modest pay cuts.

The state controller’s office has warned that even a budget signed this week may be too late to avoid issuing IOUs for the second year in a row. More than $8 billion in invoices that fell due during the months-long standoff must be paid as soon as the budget is signed. That would plunge the state into the red.

“This is a budget that reflects the compromises necessary to find a two-thirds majority,” Pérez said. " This is most glaringly obvious in the fact that it has taken us nearly 100 days.”


Times staff writers Shane Goldmacher and Evan Halper contributed to this report.