State Senate makes its move on budget fix

Calif. Democrats want higher taxes, fewer cuts
.
By JULIET WILLIAMS
Associated Press Writer

SACRAMENTO (AP) -- An emerging Democratic plan to address part of
California's $24.3 billion deficit appears unlikely to win support
from the governor and GOP lawmakers, raising the prospect of
another prolonged deadlock in budget negotiations.

Further delays could jeopardize the state's finances. Controller
John Chiang has warned the state could run out of cash by the end
of July unless lawmakers pass a balanced budget quickly.

The increasing likelihood of another budget stalemate prompted
Standard & Poor's to place California on credit watch Tuesday.

Gov. Arnold Schwarzenegger is proposing steep cuts in social
services while vowing not to accept any plan that includes higher
taxes or does not close the entire $24.3 billion shortfall.

"If they come back to us with anything that's not the full
problem, if they come back to us with whatever they solve, they
solve through tax increases, it's not something we can support,"
said Aaron McLear, spokesman for Gov. Arnold Schwarzenegger.

Assembly Speaker Karen Bass has said Democrats are considering a
severance tax on oil production and closing some corporate tax
loopholes. They also are discussing another increase in the vehicle
license fee after raising it during a February budget vote -- this
time by $15 -- to keep state parks open.

The cuts they have proposed so far are billions of dollars less
than the governor's plan. A joint conference committee voted
Tuesday to cut $5.5 billion from education, nearly $1 billion less
than Schwarzenegger proposed, and eliminate California's high
school exit exam.

On a straight party-line vote, the Democratic-controlled
committee also voted 6-4 to reject the governor's proposal for a 5
percent salary reduction for some 235,000 state employees. The pay
cut would have come on top of two-day-a-month furloughs the
governor imposed in February, which have reduced state employees'
pay by nearly 10 percent.

The administration projected the latest move would save $470
million a year.

"It's outrageous that the Legislature would ask Californians to
pay higher taxes but refuse to cut the pay of state workers by 5
percent," Schwarzenegger said in a statement. "This is exactly
why so many Californians have lost faith in Sacramento's ability to
solve problems."

Democratic leaders said they will provide a formal summary of
their budget plan Wednesday. The full Legislature could take up the
package as early as next week.

As described so far, the Democratic budget plan would face a
steep climb to generate enough Republican support to reach the
two-thirds vote threshold needed to pass.

Schwarzenegger has proposed deep cuts to fill the $24.3 billion
deficit that has emerged since he and lawmakers passed a budget for
the 2009-10 fiscal year in February. That package increased sales,
income and vehicle taxes that were expected to bring in another
$12.8 billion.

On Tuesday, the governor's finance department said the taxes now
are expected to generate far less -- about $11.1 billion through
June 2010.

The recession has led to a sharp drop in tax revenue that has
widened the state's deficit since the February budget deal.

For the fiscal year that begins in July, Schwarzenegger is
proposing a mix of $16 billion in spending cuts, borrowing from
local governments and fees on property owners to close the deficit
for the fiscal year that begins July 1.

His cuts would eliminate health care coverage for nearly 1
million children from low-income families and California's
welfare-to-work program. He also has proposed closing 220 state
parks.

Whatever plan eventually emerges from the Legislature,
Californians are likely to be angry at lawmakers when they start
seeing reduced state and local services, Field Poll executive
director Mark DiCamillo said. He said poll respondents gave their
lowest-ever approval ratings to legislators last year.

"It's really up to the Legislature now to show that it can act
to resolve this situation or face even a greater wrath," DiCamillo
told the Sacramento Press Club Tuesday.

Even so, he said, voters are "against cutting back on the
schools. They're against cutting back on health care. They're
against cutting back on law enforcement and higher ed. So what the
Legislature is facing is really a 'damned if you do, damned if you
don't' situation."

In Washington, D.C., Tuesday, President Barack Obama's press
secretary, Robert Gibbs, responded to a reporter's question about
providing "emergency aid" to California, even though the state
has made no direct request for financial assistance.

"It's obviously not an easy time for the state of California,"
Gibbs said. "We'll continue to monitor the challenges that they
have. But this budgetary problem, unfortunately, is one that
they're going to have to solve."

McLear, Schwarzenegger's press secretary, said California has
not asked for any type of federal bailout.

State Treasurer Bill Lockyer previously asked the Obama
administration to consider having the federal government guarantee
a short-term loan to help the state avoid hundreds of millions of
dollars in additional lending fees.

The Obama administration said a federal guarantee was "not in
the cards," Lockyer spokesman Tom Dresslar said.

"The treasurer and the controller believe that if the governor
and the Legislature adopt a credible solution by the end of June,
we can go to the credit market and borrow without any help from the
federal government," Dresslar said Tuesday.