State may have budget by end of today

By Associated Press

SACRAMENTO — State lawmakers are considering a compromise plan to end California’s longest-ever budget stalemate, while acknowledging it will not solve the state’s ongoing fiscal problems.

The Senate and Assembly scheduled floor sessions for late Monday afternoon and are expected to vote on a patchwork proposal that closes the state’s $15.2 billion deficit without borrowing or new taxes.

The deal includes spending cuts and fills the remaining gap by moving up tax collection deadlines and closing some tax loopholes.

Assembly Speaker Karen Bass said the $104.3 billion general fund spending plan does not address California’s long-term difficulty in balancing spending with revenue. But the Los Angeles Democrat said it was important for lawmakers to finish work on the budget for the current fiscal year, which began July 1.

During the impasse, Republicans have refused to raise taxes on corporations and the wealthy, as Democrats had proposed. The impasse continued despite Gov. Arnold Schwarzenegger’s offer to increase the state sales tax 1 cent for three years.

“At the end of the day, we weren’t able to raise the revenues we wanted,” Bass told reporters Monday. “But we were able to close significant budget loopholes that is giving us revenue in this budget year that prevent us from having to make the draconian cuts.”

The agreement was announced Sunday by the Legislature’s Democratic and Republican leaders, who were pitching it to their respective caucuses ahead of the floor sessions.

The cuts include many of those the governor proposed in his May budget revision, although Democrats rejected what they considered the worst of those cuts. They did not want to reduce foster care funding or kick children off welfare if their parents don’t find work within five years.

Under the latest plan, the state would restore nearly all the 10 percent cuts to doctors, dentists and nurses providing care under Medi-Cal, the state’s health insurance program for the poor. Those rate cuts, which had been adopted in February, will be restored starting in March 2009.

Without taxes, legislative leaders agreed to generate one-time cash by moving up tax collection deadlines and closing some tax loopholes.

The compromise includes temporarily suspending deductions for business losses, borrowing from special funds, granting a tax amnesty and closing the infamous “yacht tax” loophole. That allowed people to avoid paying state sales tax on boats, RVs, airplanes and other large luxury items if they took possession of them out of state and kept them there for more than 90 days.

The budget proposal also seeks to generate quick cash by moving up tax deadlines for limited-liability corporations and upper-income taxpayers. They will pay 30 percent of their taxes in each of the first two quarters of the fiscal year instead of 25 percent.

Despite their compromise, Bass says she’s worried Schwarzenegger won’t sign the deal because it would grant him a watered-down version of the budget reforms he has demanded. The governor has not indicated whether he would support the plan.

“I’m hoping that he will understand we did the best we could possibly do,” Bass said.

Interest groups that have been briefed on the compromise plan said it would increase the state’s rainy day fund from 5 percent to 10 percent of the general fund budget. It also would allow the governor to cut up to 7 percent from state operations when revenue comes in lower than expected, but would exclude cuts to education and health and human services, two of the state’s biggest areas of spending.

The governor also would have the ability to impose a four-month freeze on cost-of-living increases for benefits.

Some provisions of the plan will require voter approval, likely through a special election. Those include changes to the state’s rainy day formula and a $10 billion plan to borrow against future lottery revenues.

Should voters reject the lottery proposal, it would leave a $5 billion hole over the next two fiscal years.

“It not only delays the day of reckoning, it makes it worse,” said Michael Herald, a lobbyist for the Western Center on Law and Poverty. “It’s going to accelerate revenues in the upcoming budget year, which are going to force us to have to make severe reductions in the 2009-10 year.”

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