Quantcast
Regional News

At Long Last, California Agrees on a Budget Deal

 

 

  

 

SAN FRANCISCO - California Gov. Arnold Schwarzenegger said he will today sign a budget deal lawmakers finally approved yesterday after weeks of wrangling.

The budget deal - a package of tax increases, spending cuts, and borrowing plans - is designed to close the $42 billion hole that had developed in the state's spending plan over the next 16 months.

The budget impasse, and the state government's related cash crunch, has brought most state bond-financed capital projects to a halt, and it is not immediately clear when they will get rolling again.

California has not issued general obligation bonds since June, largely because it did not have a good explanation for potential investors about how the state could manage its dwindling cash.

It's going to take a week or two before state finance officials can assess the contents of the final budget deal, which cleared the Legislature around dawn yesterday, said a spokesman for state Treasurer Bill Lockyer.

"Before we make any assessment about the infrastructure financing freeze or how soon and to what extent we can get back into the bond market, we need to fully analyze the final budget and get a firm grip on the state's cash-flow situation," said spokesman Tom Dresslar. "There were a lot of changes made late, so we have to fully understand all the details."

Weeks of budget negotiations culminated in a 45-hour Senate session lasting until dawn yesterday, as budget supporters worked to gather the last of three votes from the Senate's Republican minority needed to obtain the required two-thirds supermajority.

That vote finally came from Sen. Abel Maldonado. The senator - who has jousted at times with his fellow Republicans - demanded and received a big quid pro quo.

Lawmakers agreed to put an open primary ballot measure on the June 2010 ballot. The "top two" primary, modeled after a Washington state system that has passed muster with the U.S. Supreme Court, would send the top two vote-getters in primary elections on to the general election, even if they are from the same party.

Schwarzenegger praised the measure yesterday, saying it would make it easier for moderates to get elected, and reduce the polarization that was evident during the long budget debate.

"That is something that both parties hate," he said of the measure. "It's not good for politics. But what's not good for politics is good for the people, and that's the bottom line here."

Maldonado also received changes to the package of tax increases in the budget plan. At his insistence, a 12-cent-per-gallon fuel tax increase was nixed, paid for in part by changing the formula used to calculate the personal income tax increases. Instead of a surtax on tax liabilities, there will now be a 0.25% increase to all personal income tax rates.

That would bring the state's top marginal rate, for taxable income over $1 million, to 10.55%. Dependent credits will also be reduced.

The state's sales tax will go up by 1%, and property taxes on motor vehicles will climb.

The tradeoff for the tax hikes will be that voters will be asked to approve a spending limit, designed to capture excess revenues in good years, and save them in a rainy-day fund for the bad years, according to the Schwarzenegger administration.

"This budget reform will prevent future governors and legislatures from grappling with the budget crisis we saw this year," he said at a press conference.

The tax hikes are temporary - though they will last longer if voters approve the spending cap. Voters will be asked to approve the cap in a May 19 special election, which will include several other measures that underpinned the budget deal.

Among them is voter authorization to issue bonds secured by state lottery revenues, a deal counted on for $5 billion in proceeds during fiscal 2010.

The budget plan also includes almost $6 billion in revenue anticipation warrants, though it includes a provision to either reduce the size of the RAW offering or eliminate it if federal stimulus money is available.

The state's cash shortage led state Controller John Chiang to suspend many routine state payments, including income tax refunds and reimbursements to county governments for state-mandated social programs.

County governments had sued Chiang in Superior Court, seeking an order to pay those reimbursements, and that lawsuit remains active.

"They haven't cut the checks yet," said Paul McIntosh, executive director of the California State Association of Counties.

The counties plan to seek an expedited hearing, and a precedent to move county payments higher in the pecking order of state disbursements when cash is short, he said.

In all, 34 bills were needed to adopt the budget and the associated compromises needed to secure budget votes. Other compromises include enhanced authority for governments to use design-build contracts and public-private partnerships.

Despite the drawn-out nature of the negotiations, the budget deal accomplished something unusual for California. In a state best known for routinely adopting budgets weeks or even months after the start of a fiscal year, lawmakers have adopted a fiscal 2010 budget more than four months before the year begins on July 1.

Now they have to hope everything holds together, as the budget depends on state revenues coming in as projected, voters approving the $5 billion lottery bond authorization, and investors being willing to buy that amount of lottery bonds.

SEE MORE IN

RELATED TAGS

Upcoming Events

Already a subscriber? Log in here
Please note you must now log in with your email address and password.