California budget talks continue: A deal at last?

Gov. Arnold Schwarzenegger and California’s top lawmakers are set to resume talks Monday with the hope of hammering out the final details on a deal to close the state’s $26.3 billion budget deficit after canceling talks scheduled for Sunday evening due to a scheduling snafu with Assembly Leader Karen Bass (D-Los Angeles).

The leaders, who last met on Friday, have said for days that they are near agreement on a package to eliminate California’s $26.3-billion deficit.  Legislative leaders said they made “huge progress” Friday night in talks in the governor’s office and had planned to meet again Sunday night in hopes of finalizing an agreement.

Speaking to reporters Sunday night, Assembly Speaker Bass said she was confident that a budget package would be completed within “the next day or so.”

She said floor votes in the Legislature are tentatively planned for late this week. Details of what is in the package have not been disclosed publicly.

Among the issues that have bedeviled the months-long negotiations: a plan to take money from local governments; education funding; cuts in state welfare services; and the governor’s demand that changes to the structure of state government be part of any plan to plug the budget gap.

While legislative leaders did not meet on Sunday evening, The Sacramento Citizen has learned that high level staff did gather in the Governor’s office on Sunday afternoon to discuss and review some of last outstanding pieces of the budget puzzle.

So what’s in the current proposed deal?  Capitol Weekly reports the following: 

“Under the framework of the deal, sources in the governors office and the Legislature say schools would be cut $680 million above and beyond the reductions adopted by the Democrat-controlled legislative conference committee. While the state’s welfare program, CalWORKS, would not be entirely eliminated, the cuts would also go beyond what the conference committee had proposed.

Democrats also appear to have been able to hold the line against reducing the length of time people can receive welfare benefits. Currently, there is a five-year maximum on welfare benefits, and Schwarzenegger had sought to reduce that number to two years. Democrats said it appeared changes in the benefit eligibility timeline would not be made as part of this budget deal.

“Local governments are also slated to take a big hit, but Bass said it remained unclear what the final number on local government cuts would be. Among the proposals on the table are to take about $1.6 billion worth of gas tax revenues from locals, and another plan to borrow up to $2 billion from local governments overall budgets.”

Unless the train runs off the tracks during negotiations today, lawmakers could be looking at a budget vote by Wednesday or Thursday of this week.

California Budget Talks Stall Over Education

California Governor Arnold Schwarzenegger and lawmakers failed on Wednesday night to agree to balance the state’s budget by closing a $26.3 billion deficit, but officials said talks would continue.

The prime obstacle that reared up to undercut the talks late Wednesday was a difference over how to tweak voter-approved school funding formulas so the state can cut billions of dollars it still needed to balance its books — but guarantee that school funding was restored when the economy rebounded.

Aside from the disagreement over education funding, (Schwarzenegger spokesman Aaron) McLear said Democrats remain “unwilling” to make deeper cuts to create a healthy reserve so the state can weather an economy that could get worse before it gets better.

The legislature’s two top Democrats said budget talks would resume on Thursday.

Schwarzenegger, a Republican, had said earlier on Wednesday he was hopeful a deal to resolve the lengthy budget crisis was near and might be reached by the end of the day.

“There’s no nastiness in the discussions, no blowups,” he said at a press conference. “There’s none of that, so I think we have a good shot of getting the budget done today.”

The state government began its fiscal year on July 1 facing a historic budget gap and a severe cash crisis.

California, which would be the world’s eighth largest economy if it were an independent nation, has issued IOUs to vendors as well as taxpayers owed refunds to save cash for servicing of state bonds and other priorities payments.

Among sticking points in negotiations are Schwarzenegger’s demands for a budget deal including changes to rules he says will prevent fraud in welfare programs.

He has also proposed paring education spending by suspending a voter-approved measure that locks in funding levels for public schools. Democrats oppose both ideas and are especially concerned about education spending cuts.

The size of a budget reserve also is being discussed. A cash cushion may help the state sell short-term debt after a budget agreement is reached. “It’s all about being able to go out to the market after this is done,” Steinberg said.

State Senate Republican Leader Dennis Hollingsworth said the state could use a reserve of up to $2 billion.

California’s IOU effort is also intended to calm Wall Street. Credit rating agencies have grown increasingly anxious about sagging state revenues propelled by the recession and double-digit unemployment.

Moody’s Investors Service on Tuesday cut its rating on about $72 billion of the state’s general obligation debt by two notches to Baa1, or three notches above speculative “junk” status. Moody’s said there may be further downgrades because the risk to priority payments — and eventually debt servicing payments to bondholders — is rising without a budget deal.

On July 6, Fitch Ratings cut its credit rating on California to BBB, just two notches above junk level.

Democrats have conceded there will be no tax increases in a budget deal as Schwarzenegger and anti-tax Republicans in the legislature’s minority have demanded and have accepted dramatic spending cuts to fill the state budget gap. “We have made very, very deep cuts,” Bass said.

State Budget Takes its toll on Lawmakers

It looks as though the state budget is finally taking its toll on California lawmakers.

As California sinks further into the financial abyss, lawmakers have attempted for months to reach a $26 billion budget compromise. Not only does this lack of resolution have the Capitol community perplexed and bewildered, but it seems to have tempers flying high, as witnessed by what happened in the Senate Judiciary Committee on Monday between democratic committee members and Assemblyman Mendoza (D-Norwalk) while presenting his AB 377.

Exit Note: Even if lawmakers arrives at a compromised budget fix in the next few days, the economic outlook for California remains bleak. Consider, for example, the new dark, but perhaps realistic, projection by University of California, Santa Barbara,economists. The UC Santa Barbara forecast has California’s unemployment rate, now over 10 percent, nearing 14 percent by next year, which means another half-million workers would join the jobless ranks. California has a baseline general fund budget of about $110 billion a year. Revenues, without the recently enacted tax increases, are at least $25 billion less. Even the tax increases will erase only about $10 billion of that annual shortfall.

Hat tip courtesy of Champagne Politics

Budget Talks on Education Set for Today

Capitol Weekly is reporting that it’s make-or-break day in the California state budget neogtiations, as the governor and party leaders resume talks today, some of the thorniest issues surrounding how to balance a $26.3 billion deficit remain unresolved. Meanwhile, IOUs from the cash-strapped state continue to pile up in mailboxes across the state: As of Monday, California had issued 129,786 IOUs this month, totaling $435,706,583.33, to vendors, taxpayers awaiting refunds, local governments and others, according to Controller John Chiang.

Things will get no easier when the five legislative leaders prepare to talk about education funding in a round of meetings set for today. School funding is the largest portion of the state budget, and the decisions over whether to pay back schools billions in lost funds over the next several years, and whether to suspend the Proposition 98 guarantee, are two of the central questions in the ongoing budget talks and debate.

The Chron’s Matthew Yi reports, “Schwarzenegger wants to suspend Proposition 98 , a 1988 voter-approved law that guarantees funding levels for K-12 schools and community colleges. Suspension of those rules would allow the state to make deep cuts to education spending.

“But the Republican governor’s proposal has provoked sharp criticism from Democrats and the California Teachers Association.

The politically powerful teachers union began a statewide TV ad campaign last week criticizing the governor, and Schwarzenegger is firing back with a TV spot that will begin airing today arguing he will not sign any budget deal that includes taxes or does not eliminate fraud, waste and abuse in government.”

 Meanwhile, as the tone seems to have been changed around the budget talks, yesterday saw a strange upping of the ante, as the governor took to the airwaves with commercials of his own promoting no new taxes and a quick budget solution . John Myers reports,

“Sacramento is asking me to sign a budget that raises your taxes and spends money we do not have,” says the governor in an ad that’s reminiscent of the old days. Also known as 2003.

Yes, the ad (a throwback as much as the ad against him) comes across as Schwarzenegger the candidate promising to “clean house” at the state Capitol. “I’m asking you to stand firm with me,” implores the governor in a 60 second ad that’s full-screen Arnold with an almost eery crescendo of music at the end.

“The timing of the ad seems somewhat at odds with the warm and fuzzy vibes oozing out of this weekend’s eponymous Big Five meetings, a sense that all sides were finally getting close to reaching accord.  It will be interesting to see if the ad hastens a resolution or simply further distances legislative leaders.   Following is the ad:

Mike Zapler reports that despite the ad, the mood remains optimistic . “When it comes to California’s perpetually dismal state budget, good news is relative. So the fact that Gov. Arnold Schwarzenegger and legislative leaders spent much of the weekend huddled in Schwarzenegger’s office talking about how to fix the gaping budget shortfall may well pass for cause for encouragement.

California Budget Update

After a week of name calling and communication breakdown, the budget negotiators ended this week on their best behavior, with long Big 5 meetings and nebulous promises of progress toward a budget deal.

AP’s Judy Lin reports, “Against a backdrop of IOUs and expanding government furloughs, Gov. Arnold Schwarzenegger and legislative leaders expressed optimism Saturday that they were moving toward a compromise that could end California’s fiscal calamity.

“Negotiations to close the state’s $26.3 billion deficit restarted after two weeks of inaction and partisan bickering. Top lawmakers from both parties said a budget-balancing deal was possible in the coming week.

“I would say we’re getting very close to a general framework, but there are still outlying questions,” said Assembly Minority Leader Sam Blakeslee, a San Luis Obispo Republican, after emerging from a closed-door meeting between lawmakers and Schwarzenegger.

“They negotiated about 2½ hours Saturday before ending talks for the day. Senate Minority Leader Dennis Hollingsworth. Negotiators were expected to return to the Capitol Sunday.”

AP’s Samantha Young reports that despite the progress, a deal remains elusive .

Lawmakers from both parties said Sunday that they had made headway after a weekend of closed-door meetings at the Capitol, but acknowledged a deal remained elusive. It was unclear when legislative leaders would reconvene for talks.

“Lawmakers remained at odds over how to close the budget shortfall despite a consensus that severe spending cuts were inevitable. Schwarzenegger also wanted to seek out waste and abuse in welfare, in-home support and health care programs. The governor’s office has said those reforms could save taxpayers roughly $1.7 billion this fiscal year.

“Over the weekend, lawmakers discussed some of those reforms, as well as proposals to consolidate state agencies to save money and generate revenue by selling state property.

“The biggest test will come in the next few days when lawmakers said they expect to make difficult decisions about cuts to education and welfare. The legislative leaders must also win the buy-in of their respective caucuses once a deal is struck.”

Governor Declares State of Fiscal Emergency

On Wednesday afternoon Governor Schwarzenegger held a press conference to discuss the next steps that need to be taken to solve the state’s ever growing budget crisis. 

Schwarzenegger declared a new state of fiscal emergency, launching another special session for lawmakers to continue dealing with the state budget crisis.  The Governor also announced a third furlough day per month for state workers.  Those furloughs will occur on the 1st, 2nd, and 3rd Fridays of every month through June 2010.

Schwarzenegger also announced that he would not sign any legislative measure unrelated to the budget.

By allowing the fiscal year to end without trimming $3.3 billion from the 2008-09 education budget, lawmakers and Governor Schwarzenegger lost the chance to cut spending in a manner considered crucial to bridging the $24 billion deficit.  The new deficit number will be roughly $26.3 billion, approximately $2 billion higher than the governor’s May budget, according to Schwarzenegger’s Department of Finance. 

Before turning the press conference over to the Director of Finance, Mike Genest, the Governor proposed additional program cuts to solve the larger deficit problem, and once again pushed for reforms to the state’s pension system.

California’s budget crisis deepens after lawmakers miss deadline

By allowing the fiscal year to end without trimming $3.3 billion from the 2008-09 education budget, lawmakers and Governor Schwarzenegger lost the chance to cut spending in a manner considered crucial to bridging the $24 billion deficit.

Instead, Senate Republicans, Democrats and the Governor remained in a political standoff over other parts of the budget, particularly how much to slash health and welfare programs.  As a result, Capitol Weekly reports the standoff got a little more expensive this morning. “The state Senate rejected three bills that would have lessened the state’s immediate cash crush by billions of dollars in a surreal late-night session in which a packed Senate chamber quietly counted down the minutes to the new fiscal year, as Senate leader Darrell Steinberg’s efforts to cajole Republicans came up empty.

“Republicans in the Senate, at the behest of Gov. Arnold Schwarzenegger, did not vote for the bills because Democrats and Republicans could not come to an agreement of a comprehensive $24 billion budget solution that the governor has repeatedly said he must have before signing any partial budget fixes.

“The bill’s failure means that Controller John Chiang will begin issuing promisary notes to certain state vendors so that the state has enough cash on hand to meet debt service obligations and make education payments that are constitutionally required.”

Schwarzenegger plans to declare a new state of fiscal emergency today, launch another special session and propose additional program cuts to solve the larger deficit problem, spokesman Aaron McLear said. The new deficit number will be roughly $26.3 billion, about $2 billion higher than the governor’s May budget, according to Schwarzenegger’s Department of Finance. 

If you didn’t stay up for the festivities, you can read the saga of the final moments of the last fiscal year, blow-by-blow, on the Sacramento Citizen’s Twitter feed.

UPDATE:  According to the San Jose Business Journal when readers were asked to name who is most responsible for the state’s fiscal crisis about 42 percent of those responding to the Business Pulse survey blamed the Democrats for the stalemate concerning the state’s $24.3 billion budget deficit.

CA Budget Update: Read-out of Steinberg and Bass press conference

Late this afternoon, Senate President Darrell Steinberg, D-Sacramento, and Assembly Leader Karen Bass, D-Los Angeles held a press conference regarding the continued budget standoff.

Following is a short hand transcript from the Steinberg and Bass press conference this afternoon regarding the budget:

Steinberg:

wanted to give you an update. 10 mins ago the senate sent down two bills to gov. One was budget bill that contains cuts and the other was one time revenue bill. Those bills will package of 3 bills in question would amount to 22 billion. We hear gov plans to veto. Going to everything we can to avoid losing 3 bill in solutions and solve deficit.

Speaker and I met with gov this morning to figure out how we resolve the all or nothing scenario in which we lose the 3 billion. We sent down letter to gov that committed to sending gov package of reform solutions over the next 60 days and would take action on them by August 30th. Restructuring medi-cal, eligibility for public assistant programs, bill to reduce fraud in IHHS. We had no formal response from him. His strategy still all or nothing. Comes down to one key issue — whether or not we cut the safety net in CA to the bone.

Yesterday gov’s office media alternatives. Unacceptable. In IHHS he proposes to remove level 3 recipients. Those people need physical assistance to bath. In Cal WORKs, 25 million people won’t get job training. In Cal grants 22,000 second chance students wouldn’t get grants. The price is too high. There are other options even with taxes.

Bass:

the bills we are sending down today do not include taxes. If we get votes for the 3 bills in the senate, on his proposals, and solves our majority vote proposal then we have solved the problem. 6 billion in damage if he doesn’t sign. Proposal would go into affect a little bit later. IHHS- we passed out two bills that address fraud. We are serious about it. But we need gov to take action.

Stein: also if we lose these cuts then maintains factor kicks in. If gov signs 3 bills he doesn’t lose ability to negotiate. Still have 20 something bill problem to solve.

Q: Not sending tax bill to gov?

Stien: No.

Q: no oil or tobacco tax?

Stein: no. Indep contractor Withholding and acceleration

Q: Prop 1A borrowing?

Bass: No. That takes 2/3rds.

Q: If gov says he’ll sign then will sen reeps put up votes?

Bass and Stein: Yes.

Q: How do you know?

Stein: we know

Q: Any chance of solving whole thing today?

Stein: no. Gov wants to make more cuts to health and human services areas than we are willing to do.

Q: what about healthy families?

Stein: don’t agree with gov alternative one that.

Q: how do you get to 24 without elim safety net?

Bass: we don’t cut as deep.

Stein: we are willing to talk to administration about Prop 1A.

Q: not possible to have solution tonight?

Stein: no. Not a drafted solution. We can work on framework.

Q: strategy for tonight?

Stein: get back to senate floor. 3 bills will go on call.

Bass: asm is recess but we’re ready to go back if needed

Q: hope of getting sen reep votes without gov?

Stein: there is always hope

Budget Stalemate Continues, Governor Now Wants Pension and Retiree Health Benefits Reform

Hours away from being forced to issue IOU’s to pay it’s bills, California’s budget problems evolved into a game of political chicken Thursday, as Gov. Arnold Schwarzenegger and GOP state senators took an all-or-nothing stance on the budget.

On highly unusual bipartisan votes, the Assembly overwhelmingly passed three bills that would free up cash for the fiscal year that starts Wednesday, by cutting school spending and delaying some payments to schools, colleges and local governments.

But the bills sank in the Senate in the face of united opposition by Republican senators and the governor.  Gov.  Schwarzenegger has vowed to veto the democratic majority vote only plan, which Republicans say they will fight on the grounds that it unconstitutionally raises taxes without the required two-thirds vote.

The result was another wasted day in the quest to erase a $24 billion budget deficit before next Wednesday.

State Controller John Chiang has warned that without a balanced budget in place by then, he will begin using IOUs to pay most of the state’s bills.  That would mean approximately $3 billion in IOUs would be sent out in July to everyone from state contractors to college students, welfare recipients and low-income seniors.

Now as the state faces a deadline literally hours away, the governor has announced at the 11th hour that he wants to reform the state’s pension system first.  Call it a ‘revised vision’ for the budget if you will.

“Gov. Arnold Schwarzenegger, calling current benefits “unsustainable,” proposed a sweeping reduction in pension and retiree health benefits for new state workers.

“His plan would give new employees the same pensions received by state workers before a major benefit increase a decade ago, saving the state an estimated $74 billion over the next three decades.

“The new state workers would have to work 25 years, instead of 20, before receiving maximum retiree health coverage that would pay 85 percent of the average HMO premium, instead of the current 100 percent, saving the state $19 billion.

The recent proposal by the Republican governor is one of a series of “structural reforms” he is seeking as he negotiates with the Democratic-controlled Legislature to close a $24 billion state budget gap.

With President Pro-Tem Steinberg (D-Sacrament0) promising a Session that goes until mindight, Tuesday is looking to be a long day for state lawmakers.  Despite the entrenched sides, California’s political leaders realize that solving California’s budget crisis gets $3 Billion harder at midnight.  That’s because the plans by both Democratic leaders and Gov. Arnold Schwarzenegger include about $3 billion in spending cuts in the 2008-09 fiscal year that ends tonight.

As the San Jose Business Journal reports, if those cuts are rolled over into the new fiscal year’s budget, the state’s constitutional funding requirements would have to be suspended and $10 billion expected from the federal stimulus package would be lost.