State lawmakers hopeful of solving budget shortfall |

State lawmakers hopeful of solving budget shortfall

Judy Lin / The Associated Press

SACRAMENTO – California lawmakers are close to striking a deal with Gov. Arnold Schwarzenegger to solve the state’s $26.3 billion budget deficit, leading Democrats said Friday after emerging from three hours of closed-door negotiations.

“This thing is coming to an end sooner than later,” said Senate President Pro Tem Darrell Steinberg, D-Sacramento.

He said an agreement could come as soon as Sunday night, when talks are scheduled to resume.

The main sticking point is finding a way to repay billions of dollars to schools, a disagreement that halted talks earlier in the week. Another is deciding whether to take money from city and county governments, many of which have experienced steep declines in tax revenue and are being forced to lay off workers, including law enforcement officers and firefighters.

Democratic Assembly Speaker Karen Bass said the sides have not yet reached a deal but said she was optimistic they would get one soon.

“We made huge progress today,” she said.

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The resumption of talks came on a day that state government offices closed for the second time this month and as a health program for low-income children stopped accepting new applicants for the first time in its 12-year history.

Healthy Families, which offers reduced-cost medical coverage to low-income children, began putting new applicants on a waiting list because of a projected shortfall of at least $90 million.

Advocates fear as many as 570,000 children would be denied access to health coverage, but program officials pegged the figure around 400,000 if the freeze were imposed for an entire year.

“I understand there’s no money, but the kids, they deserve to have some health insurance, some coverage. We don’t have enough income to pay for their medical bills,” 26-year-old Pa Lor said as she signed up for the waiting list at a Sacramento County Healthy Families contract provider.

The effects of California’s fiscal crisis are being felt throughout the state, with IOUs going out to thousands of state vendors, state government employees forced to take three days off a month without pay, teachers uncertain about whether they will be called back to work as the school year approaches and the state’s credit rating in the tank.

Hours before lawmakers and Schwarzenegger began their latest round of talks, the U.S. Department of Labor reported that California’s unemployment rate remained at a record high of 11.6 percent, underscoring the challenges facing the state’s economy.

Income tax revenue to the state has plunged 34 percent during the first five months of the year, leading to a massive imbalance between the state’s income and its spending obligations.

It’s that imbalance the governor and lawmakers are trying to fix in a budget that was passed in February.

Despite the renewed sense of optimism, negotiators still have not resolved the main points of disagreement that have prevented a deal so far, including whether to repay public schools for money that was cut from earlier budgets and whether the state should maintain a reserve fund for emergencies.

“We are closer than we have been, but we still have a ways to go,” said Aaron McLear, Schwarzenegger’s spokesman.

In an early glimmer of good news, Citibank announced Friday it was extending the period it will accept IOUs, which the state began issuing this month to preserve cash. That will provide temporary relief for vendors who have been issued the warrants instead of payments for providing staffing, cleaning office supplies and other services to the state.

Earlier in the day, about 500 local government officials from around the state gathered in a hotel across from the Capitol to discuss Schwarzenegger’s proposals to take billions of dollars from local treasuries.

“Folks are gathered across the street right now to talk about how to take money from our schools, from our cities and our counties,” San Mateo County Supervisor Rich Gordon said as he opened the conference.

The crowd responded with hisses, boos and shouts of “no way!”

Some local government groups have threatened to sue if the state tries pry away their tax money. Republican lawmakers, some of whom are needed to reach the two-thirds threshold for passing a budget in the Legislature, have been cool to the idea of raiding local coffers.

Schwarzenegger, a Republican, also disagrees with the Legislature’s two Democratic leaders over whether the state should guarantee that schools will always get back what is cut during lean budget years.

Both parties agree schools should be repaid about $11 billion from recent budget cuts, but Democrats want a written guarantee enshrined in the state’s complex education funding formula that schools will always get such repayments.

The administration believes such a change would require voter approval.

Education advocates prefer to make repayment permanent because they feel the governor hasn’t always made good on his past promises. In 2005, the administration agreed to repay $2.9 billion to public education after the state’s largest teachers union accused Schwarzenegger in a lawsuit of taking school funding and refusing to pay it back.

In Los Angeles, protesters were anticipating deeper cuts to health and social service programs in any final budget deal.

Dozens of union members, home-care workers and their supporters gathered Friday near Schwarzenegger’s Brentwood estate to ridicule his proposed spending cuts, chanting “shame on you” and “no budget, no peace.”

Dozens of armed police watched over the crowd and guarded the private road leading to the home.

At one point, two disabled women in motorized wheelchairs began moving up the road, while leading the crowd in the civil rights anthem “We Shall Overcome.” Police blocked them; they were ticketed for trespassing but not taken into custody.

“The criminal is in Sacramento. His name is Arnold,” Lillibeth Navarro, one of the women, shouted as police surrounded her.

– Associated Press writers Steve Lawrence, Don Thompson and Juliet Williams in Sacramento and Michael R. Blood in Los Angeles contributed to this report.