California Poised for Budget Accord

SAN FRANCISCO - California lawmakers were poised to adopt a budget yesterday and bring an end to a record-setting deadlock that pushed the state government 11 weeks into the fiscal year without a spending plan.

Adoption of the budget would allow the state to return to normal operations - including the issuance of long-term and short-term debt - though the proposed budget does not appear to solve the state's structural budget problems and probably will make them even worse next year.

The budget standoff grew out of the requirement that the budget must be approved by a two-thirds vote in each house of the Legislature.

While both the Assembly and Senate have Democratic majorities, the two-thirds requirement gives Republicans veto power if they hold together, and they did hold their ranks and refuse to vote for any tax increases to solve a $15 billion budget deficit.

Democrats had proposed increases in income tax rates, while Gov. Arnold Schwarzenegger, who has become isolated from his fellow Republicans in the Legislature, proposed a temporary sales tax increase.

The governor also insisted on meaningful reforms to the budget process, including larger rainy-day reserves and mid-year spending cut authority.

As of yesterday morning, it wasn't clear if he would back the budget, which was announced Sunday night by the "Big Four" legislative leaders of each party in the two chambers.

"We're still analyzing the Big Four's proposal," the governor's finance spokesman, H.D. Palmer, said yesterday morning. The key question was whether it goes far enough to reform the budget process, he said.

Details of the announced deal remained murky earlier yesterday, with leaders planning to spend yesterday explaining the deal to their caucuses in advance of possible budget votes later in the day.

Reports indicate that the budget would include about $9 billion in cuts from planned spending, the closure of some loopholes, and several billion dollars in cash flow solutions, essentially recording money in the current fiscal year that was expected in fiscal 2010, which would have the effect of increasing the budget deficit for that year.

Passage of a budget - which will require California to make billions of dollars in payments to vendors and local governments that it had no authority to make without a budget - is expected to accelerate the timing for the state to go into the market with a short-term borrowing in the $10 billion range for its cash-flow needs.

Teams from the state treasurer's office and controller's office have been working together on scenarios to issue either the traditional revenue anticipation notes or revenue anticipation warrants, or some combination of the two.

"We need to see what the budget looks like," Hallye Jordan, spokeswoman for the controller's office, said yesterday afternoon. The controller would conduct any Raw sale. "At this point, we just don't know," she said.

"If this is something the governor can support, obviously we would like to move as expeditiously as we can on a Ran financing," Palmer said yesterday.

With a budget in place, the treasurer's office will also be able to return to the market for new general obligation bonds.

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