Calif. lawmakers debate $42B budget plan

SACRAMENTO " The California Legislature on Saturday began approving a budget-balancing plan that would raise billions in taxes and cut billions more from education and other programs to close the state's $42 billion deficit.

The Assembly and Senate approved the first few relatively non-controversial bills in the package, but the toughest votes to raise taxes lay ahead.

Assembly Speaker Karen Bass, D-Los Angeles, said the plan would provide a "stable framework" to erase the state's red ink.

"It helps stop the bleeding," she said. "It infuses more cash into the system, and it buys us time to work together to find ways to spur the economy. ... None of us came here wanting to cast these type of votes, but this is an emergency."

Many Republicans opposed the plan, unwilling to raise taxes to deal with the state's historic deficit. The resistance was important because at least three GOP voters were needed in each house to pass the budget.

Assemblyman Chuck DeVore, R-Irvine, said the package didn't "go far enough to reform government, to reduce redundant agencies and reduce waste, fraud and abuse. We are asking the taxpayers of California for too much of their hard-earned money in an attempt to cover over a problem of our own making," he said.

Later in the night, DeVore resigned as minority whip after he was unable to persuade his fellow Republicans to vote unanimously against the budget bills. He called it "an issue of principles" and said passing a budget with tax increases would hurt the Republican Party.

The unusual night session took place more than three months after Gov. Arnold Schwarzenegger called the first of a series of special sessions to address California's fiscal crisis, during which he had to deal with competing demands from both parties.

Democrats have decried the $15.1 billion in cuts in the budget-balancing package, more than half of which would come from education, while Republicans are unhappy about $14.4 billion in temporary tax increases.

The plan also relies on $11.4 billion in borrowing, which could be offset by money in the federal stimulus bill that passed Congress this week. It also depends on several ballot measures that will go before voters in a special election to be held May 19.

Assembly Minority Leader Mike Villines said the only alternative to the plan was to "literally go insolvent and over the cliff, and many of us believe that is irresponsible and giving up our constitutional responsibilities."

The budget package was contained in a series of some 26 bills and constitutional amendments.

It's designed to fill California's budget gap through June 2010 if voters also approve a number of related measures at the ballot. Those include a state spending cap, a plan to sell bonds based on future lottery proceeds and approval to shift money from accounts for mental health and child-development programs.

Shortly before midnight Saturday, both houses had approved bills dealing with the spending cuts, ballot measures and some of the steps intended to stimulate the economy. They were leaving the tax increases for the end, and some legislative aides predicted that final votes would not come until early Sunday morning.

The Saturday night sessions came at the end of a frenetic week of closed-door negotiations, and disrupted Valentine's Day plans for lawmakers, their staffs and others. As lawmakers worked Saturday afternoon inside the Capitol to prepare for the evening session, thousands of spectators lined the streets around the building to watch the Tour of California bicycle race.

California's deficit has exploded in the face of a worsening recession that has seen the state's unemployment rate rise to 9.3 percent, a 15-year high.

Sales, property, capital gains and income taxes have plunged in recent months. In January alone, revenue from personal income taxes dropped nearly 20 percent compared with a year ago as the state took in almost $2.2 billion less.

With cash reserves drying up, the state controller has delayed refund checks owed taxpayers and payments to state vendors. State government workers have been forced to take two days off a month without pay, and work has been stopped on some 2,000 public works projects.

Meanwhile, California's credit rating has tanked, making it nearly impossible for the state to borrow money to pay its day-to-day bills.

Schwarzenegger has said the state faces "financial Armageddon" and warned that he would start the process of laying off 10,000 state employees if a budget deal was not reached by Friday. His office said the governor decided against pulling the layoff trigger because it appeared the Legislature was on the verge of passing a plan to close the deficit.

Lawmakers have been deadlocked over finding a compromise for months in large part because of the legislative hurdle they must overcome to pass a budget. California is just one of three states, along with Arkansas and Rhode Island, to require a two-thirds majority vote, a threshold that requires at least three Republicans in each house to side with majority Democrats.

Even in the face of financial calamity, it has been challenging to find those votes.

Republicans, many of whom earlier signed a no-tax-increase pledge, were under pressure to defeat the budget proposal because it contained a variety of temporary tax hikes.

Those include an increase of 1 cent on the dollar in the state sales tax, generating $5.8 billion through the next fiscal year, and a 12-cent-a-gallon hike in the gasoline tax, raising $2 billion. The vehicle licensing fee would rise to 1.15 percent of market value, up from the current .65 percent, bringing in about $1.5 billion.

Taxpayers who owe money to the state at the end of 2009 would pay a one-time, 5 percent income tax surcharge, generating a projected $3.2 billion. The surcharge would drop to 2.5 percent if California gets its expected share of federal money.

Many of the tax hikes would remain in effect through the 2013-14 fiscal year if voters approve the cap on state spending. That deal is designed to limit opposition to the spending cap, which was sought by Republicans.

Lawmakers are hoping government employee unions that might otherwise oppose the cap will not fund opposition campaigns knowing that the tax increases would be rolled back sooner if it fails at the ballot.

While Republicans denounced the tax increases, Democrats said they, too, had to sacrifice by agreeing to deep cuts in programs they deem essential.

Assemblyman Dave Jones, a Sacramento Democrat, characterized the reductions to in-home support services for the elderly, welfare-to-work programs and assistance to the blind and disabled as "the cruelest cuts of all."