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Lawmakers, Schwarzenegger unable to reach compromise
By Ed Mendel
San Diego Union-Tribune
December 5, 2003

Gov. Arnold Schwarzenegger's proposal to put a spending limit and $15 billion in deficit bonds on the March ballot was blocked by the Democratic-controlled Legislature on Friday night, giving the Republican governor his first legislative defeat.

Barring an extension of the midnight deadline, the governor will bypass the Legislature and gather signatures to place a spending limit on the November ballot, a Schwarzenegger spokesman said.

"The governor is disappointed, yet firm in his resolve to follow through on his mandate to represent the people and to let the people have a say," said Rob Stutzman, Schwarzenegger's communications director.

"As he said he will do, he will go over the head of the Legislature – that appears to be necessary – and put this spending limit on the November ballot next year," Stutzman said.

The governor's bond and spending limit proposals were defeated on the Senate floor. In the Assembly, his proposals failed to get out of committee.

The governor met with legislative leaders Friday morning before leaving the Capitol for a public rally for his "California recovery plan" in Tracy, east of the Bay Area. Similar campaign-style events were held earlier in the week in San Diego and Bakersfield.

Stutzman said it became clear late Friday afternoon that there would be no compromise after calls made by the governor's aides to Democratic legislative staff were not returned.

"I haven't heard from the governor since he went to Tracy," Senate President Pro Tempore John Burton, D-San Francisco, said Friday night. "There ain't time for compromise."

It was not clear Friday night whether Secretary of State Kevin Shelley would extend the deadline or, if given more time, whether the governor and the Legislature could reach a compromise.

Some Republican legislators argued that the bonds, which could ease the need for additional spending cuts, should give Democrats a reason to vote for a firm spending cap that would prevent deficits in the future.

"In the politics of this, the bond is for you," Assemblyman Ray Haynes, R-Murrieta, told Democrats during a committee hearing. He said he could vote to close the state's huge budget gap with deep spending cuts.

But Democrats said the bonds would do little to ease cuts in education, health and welfare programs and funding for public works, given the state's budget gap.

"It will not avoid cuts," Burton said. "That bond has nothing to do with next year's budget."

Republicans made it clear that they would vote for the alternative $15 billion bond proposed by Democrats, which would be paid off in seven years rather than the 15 to 20 years proposed by the governor.

But the Republicans, like the governor, were demanding that the bond be linked to a spending limit that would provide much tighter control of state spending than the limit proposed by Democrats.

Senate Minority Leader Jim Brulte, R-Rancho Cucamonga, told Democrats during a floor debate that if the governor has to resort to an initiative, the spending limit is likely to be even tighter.

"I want to signal everyone here that we will want a stronger spending limit, so you will know how serious we are about restraining state spending," Brulte said.

The current budget is based on $10.7 billion in deficit bonds and $1.9 billion in pension bonds, which are being challenged in court as a violation of a state constitution provision requiring voter approval of long-term debt.

The pension bond has been blocked by one court and is being appealed by the state. Legislators think the deficit bond, which has different financing, is more likely to withstand a legal challenge.

The $15 billion in deficit bonds proposed by Schwarzenegger would have replaced both the deficit and pension bonds.

The Schwarzenegger administration, wanting a backup plan in case the bond proposal failed in the Legislature or was rejected by voters, convened a panel Friday to proceed with plans to issue the $10.7 billion in deficit bonds.

The governor's deputy finance director, Mike Genest, told a legislative committee earlier this week that the failure to issue either the governor's proposed bonds or the $10.7 billion in bonds in the current budget would be an "armageddon scenario."

The state had an estimated $10 billion budget gap for the next fiscal year, and Schwarzenegger increased the shortfall by keeping a campaign promise to repeal a $4 billion increase in the vehicle license fee.

The governor has promised big-city mayors that the state will replace the revenue lost to local governments through his repeal of the tax increase, an estimated $3.4 billion this fiscal year and $4.2 billion next year.

The governor, who must propose a new budget by Jan. 10, wants to close the budget gap without raising taxes or reducing the Proposition 98 school-funding guarantee.

Some Democratic legislators suggested that Schwarzenegger should have remained in the Capitol on Friday to negotiate with them, rather than traveling to rallies and urging voters to contact legislators in support of his plan.

Burton, the Senate Democratic leader, made an allusion to Schwarzenegger's campaign remarks about ending "politics as usual" at the Capitol.

"I have great affection for the new governor," Burton said. "But politics as usual might have had the governor in the Capitol during those weeks and not going around the state."