CA: Fierce budget parley likely despite more cash on hand

The Capitol's state-budget dance has begun, and the governor hopes that this year it will be a quick two-step. First, resolve the bonds to face voters in November. Then, flush with new money from a strong economy, approve a 2006-2007 spending plan of perhaps $127 billion. Above all, keep the bonds and budget separate.

"That's because the budget bill is a leverage point that the Legislature can use against the governor on the bonds. It gives the Legislature control because of the timing," says Bill Leonard, a Republican and former legislative leader who served in both the Assembly and the Senate. "They can say, 'We'll agree to this bill if you adjust your budget.' So it definitely makes sense that they [the governor's staff] want it separate."

"One should not be predicated upon the other," said Republican Governor Arnold Schwarzenegger's budget spokesman, H.D. Palmer. "We can get a bipartisan bond package to voters, and we can get a budget out on time."

But dangers surround this year's budget--any two-step may not necessarily be quick.

Although there is an estimated $2.3 billion in extra cash from an improving economy, the budget fight is likely to be difficult, as usual. In 30 years, during good and bad times, governors have signed the budget on time only a half-dozen times. Both of Schwarzenegger's earlier budgets were signed late. Although revenues will increase, there are a series of factors that may erode the expected windfall.

First and foremost is the structural deficit. Schwarzenegger's January budget proposal does not eliminate the nagging, year-to-year deficit of $4 billion to $6 billion, although it seeks to reduce it. Even the governor's partisans in the Legislature say getting rid of that hole will take two more years at best, but more likely five to 10 years.

The state could be on the hook for $500 million to resolve federal legal challenges prompted by the state's flawed prison health-care system. On Monday, an administrator appointed by U.S. District Judge Thelton Henderson, as planned, took direct control of the correctional department's medical program, usurping state lawmakers' authority in this costly, critical area. Schwarzenegger's finance director, Mike Genest, visited San Quentin this week to discuss health-budget issues.

The governor, who tapped education funds to balance an earlier budget, is on the hook for what education groups say was his promise to repay schools at least $2 billion. Critics charge that Schwarzenegger reneged on that commitment, which drew the wrath of the Democratic foes, led by the California Teachers Association. The issue is all but certain to arise again as the governor faces re-election.

Lawsuits challenging diversions of money from pension and welfare-to-work accounts--perhaps $630 million in one and $500 million in the other--could further drain state resources.

Voter-approved guarantees for public schools and community colleges depend in part on property-tax revenues, which decline if values drop. The state must then make up the difference to satisfy Proposition 98's rules. The UCLA Anderson Forecast says a housing slump will pinch the economy over the next two years, and that a combination of a housing slump and spiraling interest rates could deepen the blow.

"We're waiting to see what happens. We'll know more when the tax receipts come in," Palmer said.

But the governor is hoping to get a bond package on the ballot before the budget talks begin heating up. Schwarzenegger has asked lawmakers to place a $30 billion to $35 billion infrastructure-bond proposal on his desk by next month before Legislative Analyst Elizabeth Hill issues her revised estimate of the spending and revenue in the governor's budget blueprint. Hill's report, due May 12, is based on tax receipts accruing after the March 15 income tax filing deadline, and serves as the bible for Capitol budget writers as they launch their final negotiations.

The Republican Schwarzenegger, up for re-election, wants to separate the bond negotiations from the budget negotiations, fearing that discussions over one may imperil the other in the Democrat-controlled Legislature. Bonds or not, election years can be tough on budgets. When former Governor Gray Davis was up for re-election in 2002, the budget was stalled for more than two months. Former Governor Pete Wilson was luckier: His re-election-year budget was only a week late.

One issue dear to many Democrats--funding for the elderly, blind and disabled--took a hit in last year's budget, with cost-of-living adjustments frozen for both the first quarter of this year and next. The payments average about $825 a month, and for many it is their sole source of income.

Schwarzenegger is viewed as open to negotiation on sensitive cuts, even by his critics. "My immediate sense is that he's trying to figure out a way to do the right thing," says Ned Dolejsi, executive director of the California Catholic Conference, which opposed freezing those COLAs. For example, Schwarzenegger favors providing $1.5 million to help low-income people with naturalization assistance.

The multibillion-dollar bonds' debt service could affect the money available for social needs, added Steve Pehanich, executive director of Catholic Charities of California.

"The size of the bonds is a concern to social services," he said. Concerns over roads, levees, transit systems and water projects should accompany concerns for social programs. "We expect our legislators to take it seriously and find the right balance for the common good."

The governor's Republican allies are preparing for the fight. What had been seen as relatively easy budget parley because of the extra money may become something far different for a spending plan that has $92 billion in General Fund money. That figure is expected to swell dramatically after the May revise.

"Unfortunately some of our colleagues will want to expand existing programs and set up new programs," said state Senate Republican leader Dick Ackerman of Irvine. "We will have some additional revenue, but our push will be to try and reduce the debt and reduce the year-to-year deficit."

The only thing constant in life besides death and taxes is the never ending growth of government.

(Denny Crane: "I Don't Want To Socialize With A Pinko Liberal Democrat Commie. Say What You Like About Republicans. We Stick To Our Convictions. Even When We Know We're Dead Wrong.")

Up to 10 years? When Arnold took office, there was an accumulated defict of $8 Billion. Voters approved previously unconstitutional bail-out bonds of $15 billion which should have eliminated the deficit and given him a nice slush fund. Instead, huge increases in spending and continued deficit spending were proposed by the governor. Now, We have another looming deficit with projected spending exceeding revenues for as far as the eye can see. One of these days, we will have to pay the piper. Shifting the problem to the future is no solution.

Agreed. But for those of us alive now its not something we give much thought to. Let the next generation take care of the bill. Whoever said liberals are altruists doesn't really know they are in truth exactly the opposite. Too bad we don't have truth-in-labeling in politics.

(Denny Crane: "I Don't Want To Socialize With A Pinko Liberal Democrat Commie. Say What You Like About Republicans. We Stick To Our Convictions. Even When We Know We're Dead Wrong.")

Do you think there's any hope for CA's budgets given the legislature's makeup and the power of the unions?

Maybe the best thing that we can do is abandon CA to the left and Mexico and save surrounding states from tilting Blue.

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