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Governor, legislative leaders agree on $26.3 billion budget fix
Many programs will suffer; no new taxes imposed
By Steven Harmon
MediaNews Sacramento Bureau
Posted: 07/20/2009 02:27:53 PM PDT
Updated: 07/20/2009 10:52:02 PM PDT
Special Section
SACRAMENTO More than two months of a tense standoff over ever-shrinking resources gave way late Monday to an agreement among the four legislative leaders and Gov. Arnold Schwarzenegger to bridge a $26.3 billion gap between expenditures and the state's plummeting revenues.
The exhilaration on display as the Big 5 emerged from the governor's Capitol office was in the closing of the deal, if not the details.
"This is a sober time; there isn't a whole lot of good news in this budget," said Senate President Pro Tem Darrell Steinberg, D-Sacramento. "We've cut in many areas that matter to real people, but we've done so responsibly. We stood for education and protected the most vulnerable. To do that without raising any new taxes, I must say, I'm proud of the leaders and the members for hanging in there."
Schwarzenegger, who said the last few hours of negotiations were "like a suspense movie," called the bipartisan agreement a "great accomplishment."
The budget deal, which will go to both houses of the Legislature for approval by late Thursday, will allow the state to stop issuing high-interest IOUs to vendors, and stanch the decline of the state's credit, which had two recent downgrades to near junk-bond status.
Legislative leaders say they will brief their members in conference calls today.
The agreement included Democratic concessions of $15.5 billion in program cuts including $875 million that will hit the poor, children, the elderly and the disabled while avoiding outright elimination of the state's welfare-to-work CalWORKs program, In Home Support Services and the health insurance program for children, as the governor initially proposed. A series of reforms were adopted, including beefed up monitoring of CalWORKs recipients to ensure they are meeting requirements. That includes penalties for those who do not meet them, but also provides for help to those who can't because of issues such as domestic violence.
The reforms, which do not take effect for two years, include background checks for In Home Support Services providers, fingerprinting for providers and recipients and tightening regulations on time cards and unannounced visits. CalWORKs clients can remain on the rolls for as many as five years, a victory for Democrats, who rebuffed Schwarzenegger's proposal to cut eligibility time to two years.
"We have closed the deficit. We have protected the safety net," said Assembly Speaker Karen Bass, D-Los Angeles. "I'm very proud of what Democrats fought for."
Schools will take a $6 billion cut, but won a commitment to be paid back $9.3 billion in cuts from previous years. The agreement also cuts $2.8 billion from the University of California and California State University systems, $1.2 billion from the corrections department, and $1.3 billion from MediCal funding.
Schwarzenegger and Republican lawmakers were able to uphold their vow of no new taxes with a series of accounting shifts, borrowing and fund shifts. The state will extract $4.4 billion from local governments' revenues about $2.1 billion in borrowing by suspending Proposition 1A, $1.3 billion in redevelopment dollars, and $1 billion in transfers from local gas taxes.
"Local governments unfortunately have to be partners in pain," Bass said. "There was no way to close a $26 billion deficit through cuts alone." And by accelerating income tax withholdings by 10 percent, and delaying state workers' final paycheck of June 2010 by one day moving it to the next fiscal year lawmakers and the governor found $2.3 billion in savings.
From the beginning, Democrats had little hope that they could win approval of tax increases, though they proposed in their final budget conference committee $2 billion of taxes on oil companies, on alcohol and tobacco sales, and the closing of numerous corporate loopholes.
Republicans have near veto-proof power thanks to the constitutional requirement of a two-thirds vote for budgets and taxes to stand firm on their avowed anti-tax principle, despite representing barely more than one-third of either the Senate or Assembly.
"None of these (cuts) were easy choices," said Assembly Republican leader Sam Blakeslee, R-San Luis Obispo. "They entailed difficult options for the state, but we've selected a path which will lead the state back to a point where we'll be strong."
Schwarzenegger's call for a 5 percent pay decrease for state workers fizzled, though he is expected to keep three monthly furlough days through June.
The budget deal also resets the parameters for future budgets, with the lower levels of state spending now about $78 billion, compared with over $100 billion a year ago acting as a new starting point for future years, a major development for Republicans who have sought for years to control state spending.
Where does the money come from?
Welfare
Avoided outright elimination of CalWORKs and In Home Support Services, but cuts -- $528 million from CalWORKs, $226 million from IHSS and $124 million from Healthy Families -- go beyond Democrats' proposals. Democrats were able to keep the time to five years that recipients can stay on CalWORKs; Gov. Arnold Schwarzenegger sought to reduce it to two years.
Local government
The state will borrow $4.4 billion from local governments; about $2.1 billion in Proposition 1A suspension, borrowing from local general revenues; $1.3 billion in redevelopment dollars.
Parks
There will be $8 million in cuts -- about 20 percent of parks will face closure, instead of $70 million of cuts and wholesale closure of parks.
Prisons
Corrections faces $1.2 billion in cuts, but the agreement does not include early release of inmates, though the governor retains the authority to order inmate releases.
Rainy-day fund
A final budget reserve is set at $875 million.