State lawmakers pitch deficit plan
July 22, 2009
SACRAMENTO – California’s legislative leaders on Tuesday began lobbying their rank-and-file members to vote for a compromise designed to close the state’s $26 billion shortfall, even as advocates objected to health care, transportation and public safety cuts.
The Republican and Democratic leaders of the Assembly and Senate began briefing their caucuses on a plan backed by Gov. Arnold Schwarzenegger to close the gap by cutting spending, taking money from local government and speeding up tax collections.
The state needs to pass a revised annual spending plan before the state can assess its finances and stop the state from issuing more IOUs.
“Getting this budget agreement enacted will be a big step forward, but our state still has a lot of hard work and sacrifice ahead before we are out of the woods,” state Treasurer Bill Lockyer said in a statement Tuesday.
Lawmakers already have begun hearing from law enforcement agencies, local governments and union officials about the potential effects of the budget deal. A contentious vote is expected Thursday.
The governor and lawmakers announced the compromise late Monday, nearly three weeks after the state began issuing pay-you-later warrants to thousands of state contractors and vendors. Many recipients had trouble finding someone to take them after several major banks stopped accepting IOUs.
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Schwarzenegger and legislative leaders say their plan would get the state back on firm financial ground and prevent further sinking of the state’s credit rating, already the lowest in the nation.
The agreement was not expected to resolve California’s financial problems as the economy continues to struggle and tax revenue lags far behind the level of the boom years.
“This is, of course, one of the most difficult economic times to face our state since the Great Depression, so none of these were easy choices,” said Assembly Minority Leader Sam Blakeslee, R-San Luis Obispo. “I think we selected a path which will lead the state back to the point where we will be strong.”
Personal income fell this year in California for the first time in 70 years, leading to a 34 percent plunge in income tax revenue during the first half of the year. California’s unemployment rate hovered at 11.6 percent in June, the highest in modern record-keeping.
The $26.3 billion shortfall amounts to nearly 30 percent of the state’s general fund, the account that pays for day-to-day state services. The sheer size of the deficit meant that any effort to balance the state’s books would be felt throughout the state, from college students seeing a sharp increase in fees to local police and fire departments that face cuts as the state takes about $4 billion from city and county governments.
Monday’s agreement reduced general fund spending from $92 billion to $88 billion, taking California back to 2005 levels.
The compromise includes billions in cuts to education, health care, prisons, welfare and other programs. The rest of the deficit will be made up by a combination of borrowing from local governments, shifting money from other government accounts and accelerating the collection of certain taxes.
Los Angeles County supervisors on Tuesday voted to sue the state if lawmakers passed the plan to take local redevelopment and gas tax money.
The cuts include $6 billion to K-12 schools and community colleges. Nearly $3 billion will be cut from the California State University and University of California systems, while the state prison system will be cut by $1.2 billion.
Medi-Cal, the state’s health program for the poor, will be cut by $1.3 billion.
Welfare, in-home support services and a health care program for low-income children also would suffer cuts but would not be eliminated as Schwarzenegger had originally proposed.
In exchange, the budget includes some of the reforms to social programs the governor wanted, including changing the duration that welfare recipients can continuously receive benefits.
Schwarzenegger also succeeded in having a proposal to expand oil drilling off the Southern California coast included in the budget agreement.
Under that plan, drilling would be allowed from an existing rig off the Santa Barbara coast, generating about $1.8 billion in revenue over time. The proposal, opposed by many conservation groups, would be the state’s first new offshore oil project in more than 40 years.
“This is a sober time because there isn’t a lot of good news in this budget,” said Senate Majority Leader Darrell Steinberg, D-Sacramento. “We have cut in many areas that matter to real people but I think we have done so responsibly.”
Small business owner Linda Rhodes praised Schwarzenegger for holding out for a budget that didn’t raise her taxes, even though her business is staying afloat with state-issued IOUs.
“I do not want them to raise taxes. I will take vouchers over them raising our taxes,” said the owner of Rhodes Consolidated Inc. in Galt, 30 miles south of Sacramento.
The family business has just four employees: Rhodes, her husband, Fred, and their two adult daughters. It supplies state agencies with plumbing and electrical equipment like air conditioners, along with other hardware.
Vendors were not the only ones affected by the cash crisis.
Some 200,000 state government employees already have been ordered to take three days off a month without pay, the equivalent of a 14 percent pay cut. Those furloughs will continue through next June, shutting many government offices for three Fridays a month.
The leader of the largest state employees union declared the furloughs “just plain wrong,” and criticized Schwarzenegger and lawmakers for refusing to include tobacco and oil taxes in the plan.
“We’re furious about the failed leadership in Sacramento,” said Yvonne Walker, president of the Service Employees International Union Local 1000. “Their decision shows a lack of political courage to stand up to corporate giants and wealthy special interests.”
– Associated Press Writers Don Thompson, Juliet Williams and Samantha Young contributed to this report.