California Lawmakers Set Out To Sell Budget Deal

A group of California legislative leaders set out Tuesday in what is likely to prove a hard sell of their deal with Gov. Arnold Schwarzenegger to slash spending as part of an effort to plug a $26 billion hole in the state's budget.

The agreement calls for no new taxes and $15 billion in cuts, with the remainder of the shortfall to be closed by borrowing from local governments and one-time accounting measures. Education took the biggest hit, with $6 billion in cuts to K-12 schools — money state officials have promised to reimburse when the state's fiscal health recovers. Another $2.8 billion will be cut from state colleges and universities.

A contentious vote from rank-and-file lawmakers is expected Thursday.

"We have accomplished a lot," said Schwarzenegger, who was at the center of two months of often acrimonious debate. "This budget ... has no tax increases, and this is a budget that is cutting spending, and it deals with the entire $26 billion deficit."

The agreement, which must get two-thirds vote in the Assembly and Senate, comes amid the worst recession since the Great Depression, which has prompted a steep fall in tax revenues for the state.

Personal income fell this year in California for the first time in 70 years, leading to a 34 percent plunge in income tax revenue during the first half of the year as the state's unemployment rate hit 11.5 percent in May.

Amid the deadlock that preceded Monday night's agreement, the state had been issuing IOUs to pay its bills.

Although the cuts will prove painful, Schwarzenegger tried to put the best face on the cuts, saying the money taken from education "will get fully refunded" and that the budget would prove "more efficient" as a result of the tightening.

A health care program for children was among those programs spared from elimination, but it faces funding cuts that could relegate thousands of children to a waiting list.

These latest cuts come on top of billions already trimmed from the California budget earlier this year.

"It's a bit of a shell game," said Alan Auerbach, a University of California, Berkeley economics professor. "Clearly, they are using some shifting of the timing of revenues" to make up some of the shortfall, "but there are some real, significant cuts here."

In 1992, under then-Gov. Pete Wilson, a Republican, the state raised taxes to meet its budget obligations, something that has proven politically impossible in the state's current climate.

"It's just a much more politically divisive climate today," Auerbach said.

Assembly Minority Leader Sam Blakeslee, a Republican, said "none of these were easy choices."

"I think we selected a path which will lead the state back to the point where we will be strong," he said.

The $26.3 billion shortfall amounts to nearly 30 percent of the state's general fund, the account that pays for day-to-day state services. Monday's agreement reduced general fund spending from $92 billion to $88 billion, taking California back to 2005 levels.

But the budget deal "leaves a lot of questions," said Robert Ward, who heads state and local government finance research at the Rockefeller Institute.

"If this is the picture with billions in assistance from the federal government, what happens when that dries up?" Ward asks, adding that borrowing from local governments will only move taxes downstream, as the municipalities will need to balance their own budgets.

"The phrase 'no new taxes' gets thrown around, but it's usually metaphorical," he said.

Schwarzenegger also succeeded in having a proposal to expand oil drilling off the Southern California coast included in the budget agreement. Under that plan, drilling would be allowed from an existing rig off the Santa Barbara coast, generating about $1.8 billion in revenue over time. The proposal, opposed by many conservation groups, would be the state's first new offshore oil project in more than 40 years.

Some 200,000 state government employees already ordered to take three days off a month without pay will see the de facto 14 percent pay cut continue through next June.

The leader of the largest state employees union declared the furloughs "just plain wrong," and criticized Schwarzenegger and lawmakers for refusing to include tobacco and oil taxes in the plan.

From NPR staff and wire services.

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