Calif lawmakers fail on first try to close deficit

SACRAMENTO, Calif. - A Democratic plan to begin closing California's $24 billion budget deficit failed Wednesday, as legislative leaders planned to work through the weekend to avoid a cash crisis when the new fiscal year starts next week.

"We'll work every day to get it done by July 1," said the Senate's leader, President Pro Tem Darrell Steinberg.

Even before the debate began, Gov. Arnold Schwarzenegger said he would not sign the Democratic package because it contained more taxes on oil drilling, tobacco products and vehicle licensing. Republicans also said the plan did not contain enough spending cuts.

Unless Schwarzenegger and lawmakers agree to revise the current spending plan, state Controller John Chiang said he would begin issuing IOUs to thousands of state contractors starting next week. The IOUs would mean no immediate funding to local governments for social services and private vendors that provide an array of programs for the poor, elderly and frail.

Lawmakers took the bill's failure in stride.

"This is how we operate. We come together, we throw some arrows at each other, then we negotiate," said Sen. Abel Maldonado, a moderate Republican.

The Democratic plan contains about $11 billion in cuts and $2 billion in taxes on oil drilling and tobacco. It also includes $5 billion in fees and accelerated revenue through earlier collection of personal and corporate income taxes, and $5 billion in other solutions.

The overall Democratic package is slightly smaller than the governor's approach, which was intended to close the $24.3 billion deficit projected through the middle of next year.

Schwarzenegger's plan would cut about $16 billion, borrow $2 billion from local governments, take $6 billion from other government accounts, accelerate personal and corporate income tax collections and cut state employee pay by another 5 percent.