Democrats are going to need prodding to reach budget accord

Animal analogies come to mind when somebody asks, “What is going on in Sacramento with the budget deficit?”

In one sense, the scene’s like a horse race with some of the beasts balking at the starting gate. They’ll get there eventually, but it’ll take prodding and pushing.

In another sense, some Democrats -- mainly newer legislators in the Assembly -- are scrambling around like chickens with their heads chopped off.

And it’s understandable. The electorate last month chopped off nearly $6 billion in anticipated state revenue, plus $16 billion in future tax hikes.

That raised the projected budget deficit for the fiscal year starting July 1 to roughly $21 billion, up from $15 billion. Since then, it has jumped another $3 billion to $24 billion.


And last week, practically unnoticed, the red ink grew by almost an additional billion when state Controller John Chiang routinely released his wonky cash balance report for May. During that month, revenue dropped $827 million below projections.

“Without immediate solutions from the governor and Legislature,” Chiang warned, “we are less than 50 days from a meltdown of state government.”

Just to be sure, I asked the soft-spoken controller whether his reported revenue decline meant that the deficit hole had gotten that much deeper. “It does,” he replied.

But it won’t become official until decreed by either Gov. Arnold Schwarzenegger’s Finance Department or the nonpartisan Legislative Analyst’s Office.

It’s almost immaterial, anyway, to the current jockeying in the Legislature. Democrats haven’t been able to find even $13 billion in spending cuts, their apparent target.

Schwarzenegger has proposed $16 billion in slashings, but they include eliminating the state’s main welfare program, terminating medical health insurance for children of low-income families and ending financial aid for needy college students.

One thing all Democrats agree on: They’re not going to allow the governor to completely wipe out those three programs, although there’ll be some butchering.

Democrats, along with Republicans, also want to avoid borrowing -- grabbing -- $2 billion from local governments, as Schwarzenegger has proposed. That kind of borrowing is bad, lawmakers finally have concluded. And in this case, it would clobber local governments that likewise have been crippled by the recession.

But another type of borrowing -- short-term bridge loans to even out cash flows -- is routine and good. Problem is, Treasurer Bill Lockyer needs to show bond-buyers an honestly balanced budget before he can peddle the paper. The state expects to borrow up to $10 billion, all of it to be repaid during the fiscal year. It needs much of the borrowed money next month, however, because Chiang projects “meltdown” day as July 28.

And to prepare for the bond sale, Lockyer insists that the Legislature deliver a budget no later than June 30.

One big dispute between Democrats has been over how big a cash reserve to provide. Schwarzenegger penciled-in $4.5 billion. But Senate leader Darrell Steinberg (D-Sacramento) declared last week that $1 billion should be tops, thereby reducing the deficit hole to roughly $21 billion.

Steinberg is pretty much alone with his view.

Assembly Speaker Karen Bass (D-Los Angeles) apparently wants a larger reserve but isn’t publicly saying so in deference to Steinberg.

Democrats Chiang and Lockyer, however, are loudly arguing for a hefty reserve to satisfy bond buyers.

“If you don’t have a reserve in your budget, it raises some anxieties by investors about whether you can pay them back,” Lockyer says. “We’ve already seen a $827-million revenue decline” in May.

That $4.5 billion isn’t really a reserve anyway. Most of it already has been swallowed up by the growing deficit. In truth, the reserve adds up to about $1.5 billion, if that.

The bigger the money cushion, however, the deeper the spending cuts: The larger the class sizes, the more state parks that are closed, the less healthcare for children and the fewer life-sustaining services for the frail.

That’s what has Democrats murmuring to themselves in Capitol hallways and lecturing each other in hours-long party caucuses.

They’re digging for more revenue, even if a tax has to be called a “fee” to be hiked on a majority vote. Republicans have sworn not to provide the necessary two-thirds vote for another tax increase. And Schwarzenegger has vowed to veto any bill raising taxes.

But this is a matter of semantics. Schwarzenegger has proposed accelerating income tax withholding and estimated payments to generate a one-time revenue windfall of $2.3 billion in fiscal year 2009-10. The windfall would never be returned. There would be the usual rebates for tax overpayments, but the state would always be ahead that bonus $2.3 billion.

The governor’s office says it wouldn’t be a real tax increase because rates would remain the same. But that doesn’t calculate. If the government takes extra money from taxpayers and keeps it, that’s a one-time tax hike.

Schwarzenegger also last December proposed an oil severance tax to raise $836 million. But Republicans objected and the governor dropped the idea. Look for Democrats to pick it up.

They’re backed into a tight corner, but the donkeys are still kicking.