Thursday, July 23, 2009



23 JULY | 9:45 PM PDT SACRAMENTO, Calif. — California lawmakers on Thursday began voting on a complex budget deal struck by Gov. Arnold Schwarzenegger and legislative leaders that is designed to reverse the state's slide toward insolvency.

The compromise before the 80-member Assembly and 40-member state Senate eliminates nearly 60 percent of a projected $26 billion deficit with spending cuts. The rest is reached by one-time raids on local government funding and accounting maneuvers, such as deferring state employee paychecks by one day for a savings on paper of $1.2 billion.

The Senate took the first step toward approving the massive legislative package. On a two-thirds vote, senators passed a bill that cuts higher education funding, college grants, health programs, welfare, in-home supportive services and state prisons.

It was the first of 31 bills that, if passed by both houses of the Legislature and signed by the governor, would close the state's budget shortfall through June 2010.

Given past budget debates, the voting was expected to last late into the night. Some bills will require two-thirds approval, which means they need support from a handful of Republicans, the minority party in each house.

It could take even longer before officials decide whether the deal will let California stop issuing IOUs.

Legislative leaders have acknowledged the solution is imperfect and contains distasteful provisions such as offshore oil drilling and cuts across all major programs, including education, prisons, health care and welfare. But they're making their case to 115 other lawmakers that the plan is vital to address the state's cash-flow crisis. The state Assembly has one open seat.

"Nobody likes this budget because there is not much to like about it," said state Senate leader Darrell Steinberg, D-Sacramento, as he opened debate in his chamber.

He said he was pained by deep cuts to public schools and health and human services programs, and did not like having to raid city and county governments.

"But given the circumstances, I am grateful for all we have been able to save, the services we have been able to save," he said, emphasizing that the budget-balancing deal was a bipartisan compromise.

Initially, Schwarzenegger had proposed eliminating welfare and a program that provides health care to 930,000 low-income children.

The state Senate's minority leader, Republican Dennis Hollingsworth, noted that the plan closes the deficit without raising taxes. He also said it includes reforms to welfare and social service programs that Republicans believe will save the state money in the years ahead.

"We are solving a very big problem," he told his Senate colleagues. "There are no easy solutions to problems like this."

California's budget shortfall represents nearly 30 percent of its $88 billion general fund, an amount that brings the state's spending to the same level it was in 2005.

The nation's most populous state has been hammered by the national recession, leading to a steep plunge in income, sales, property and capital gains taxes. During the first five months of the year, personal income tax revenue to the state fell by 34 percent.

As the Assembly began taking up the bills, Assemblywoman Noreen Evans noted California's declining credit rating and how the state's reputation has been tarnished as it has slipped further into fiscal chaos.

She said she and fellow Democrats disliked the deep cuts to social programs but that there was no other choice but to accept the budget-balancing plan. The state must close its shortfall, she said.

"It's even worse to not have it in place," she said of the plan.

The rapid decline in tax revenue and Republicans' insistence on no tax increases have left the state with few options but to cut spending, borrow money from elsewhere and resort to various accounting tricks to balance its books.

Many aspects of the budget-balancing deal are distasteful to a wide array of interest groups, who have been protesting and lobbying lawmakers as details emerged throughout the week.

Hours before Thursday's legislative sessions, several big-city mayors held a conference call criticizing the raids from local governments. They said at least 130 local governments have agreed to sue the state to block the transfer of some money. They urged lawmakers to reject the package.

"We've laid people off. They haven't laid people off. They've done some furloughs, but they haven't gone nearly as far as cities have gone, and they need to go further," said Miguel Pulido, mayor of Santa Ana in Orange County.

Health and welfare groups and public employee unions, representing workers who have been furloughed three days a month, also have protested the cuts.

On Thursday, a group of seniors and disabled people tried to give Schwarzenegger a giant mock thank-you card from oil and tobacco companies, which they said fared well under the deal at the expense of California's most vulnerable. A spokesman for the group, Mike Roth, said they were turned away by the California Highway Patrol.

Passing the state Legislature will only be the first test of the budget-balancing deal. It also must satisfy the bond markets so California will be able to take out short-term loans to cover daily expenses until next spring, when most of the state's tax revenue arrives.

Obtaining the short-term loans is essential to the state's ability to stop issuing IOUs to thousands of state contractors and vendors, which it has been doing since early July in an effort to conserve cash.

Associated Press Writers Steve Lawrence, Juliet Williams and Samantha Young contributed to this report.

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