Lawmakers begin vote on budget

By Evan Halper and Jordan Rau

Sept. 16, 2008 12 AM PT

Times Staff Writers

SACRAMENTO — Lawmakers appeared poised to pass a budget late Monday, even as it remained unclear whether Gov. Arnold Schwarzenegger would sign it into law.

As they began voting on the bills that make up their bipartisan budget package, Schwarzenegger was threatening a veto. He said the spending restraints in the proposal were too weak, creating a rainy day fund that could too easily be raided.

Schwarzenegger spokesman Matt David said the reserve that the plan would create is “nothing more than a slush fund that can be raided at any point and up to any amount.”

Lawmakers were also brokering last minute-deals among themselves. Some demanded legislation involving issues as varied as tax credits for movie companies, relaxation of labor laws and approval of a new power plant before they would vote for the budget.

In a deal forged by legislative leaders last weekend, lawmakers had agreed to a plan that would avoid tax increases and deep cuts in services by pushing the state’s financial problems into the future.

As of today, the state has gone a record 78 days without a spending plan, leaving thousands of healthcare clinics, schools, day-care centers, nursing homes and other providers of government services without billions of dollars in state payments. Some have had to close. Others have asked their employees to work without pay.

Sen. Mark Ridley-Thomas (D-Los Angeles) said service providers “were pleading with us to end the pain and suffering. . . . To continue holding out became untenable. Once these places start shutting down and collapsing, getting them open again is very difficult.”

The plan before the Legislature would modestly increase spending for education and social services over last year, but not enough to avoid scaling back scores of programs. It would borrow against future lottery proceeds and would include limited restraints on future state spending.

The proposal is held together by financial maneuvers that in coming months would give the state more than $6.5 billion in cash that normally would not flow into Sacramento until the next fiscal year.

Some businesses and individuals would have to pay their taxes sooner, and some would have to pay more than they owe and would get the extra back later. State taxes withheld at the workplace would jump 10% for everyone.

“They are stop-gap measures,” said Jean Ross, executive director of the California Budget Project, a nonprofit group that advocates for low-income Californians.

“They are accounting gimmicks that will simply kick the can -- kick a whole six-pack of cans -- down the road without addressing our budget problems.”

School officials, healthcare advocates and unions offered the same harsh criticism.

School authorities said the plan, which includes $58.1 billion in spending for K-12 education and community colleges, leaves them billions of dollars short of what they need to maintain current offerings. David Sanchez, president of the California Teachers Assn., said the plan “exacerbates a bad situation and sets our state and public schools up for even greater funding shortfalls in future years.”

A 10% cut in Medi-Cal reimbursements to healthcare providers for the poor that lawmakers made earlier this year would remain in effect through February. Even after the cut is restored, the reimbursement rate will remain the lowest in the nation.

The budget also would increase premiums that patients pay for the state’s Healthy Family program, which provides medical care for children in moderate-income families.

Cost-of-living increases to impoverished elderly, blind and disabled people who rely on Supplemental Security Income payments to get by would be eliminated.

But the deal avoids some of the harshest healthcare cuts that Schwarzenegger had earlier proposed, including an end to dental care for the poor and limits on care for undocumented immigrants.

Although many government programs would be scaled back under the proposed budget, state prisons would see a huge boost in spending.

The plan includes $8 billion requested by J. Clark Kelso, the court-appointed receiver for prison medical care, to build seven facilities for sick and mentally ill inmates and for renovations and equipment at existing prison clinics. The state would borrow most of the money.

State Senate Republicans blocked funding for the receiver’s plan in May. But Republicans signed on to the spending because the budget deal also contains legislation they hope will speed the construction of thousands of new regular prison beds.

They believe new beds may ward off federal judges who are threatening to limit the number of inmates the state can incarcerate because of overcrowding.

Although tax rates would not increase in the proposed budget, taxpayers would be affected in a number of ways.

The state could use the cash generated by the increase in withholding taxes to reduce the budget gap; it would later refund the extra money without interest.

Taxpayers who file quarterly would have to pay more of their taxes earlier in the year. And those who earn more than $1 million and experience a big jump in income would no longer receive extra time to pay taxes on the increase.

Limited liability companies would have to prepay fees that normally would not be due until the next fiscal year. The state would give tax cheats amnesty to encourage them to pay what they owe. And tax write-offs for business losses and research and development would be suspended temporarily.

The temporary loss of the write-offs would be offset by a large future corporate tax break. When the new break kicked in, in 2010, companies would be permitted to stockpile tax credits and use them far more liberally than is currently allowed.

Legislative leaders say the future tax break would cost the state $600 million a year. Some tax experts say the cost is more likely to be billions of dollars.

Lenny Goldberg, executive director of the California Tax Reform Assn., a union-backed nonprofit, called the proposal a “huge giveaway” to multinational corporations.

Both the plan to borrow against future lottery proceeds -- generating $5 billion in cash, but not until the next budget year -- and the restraints on future spending must be approved by voters, perhaps as early as next spring.

evan.halper@latimes.com

jordan.rau@latimes.com

Times staff writers Michael Rothfeld and Nancy Vogel contributed to this report.

Late state budget:

Day 78

California can’t pay its bills. The fiscal year began July 1.

Monday: Lawmakers were voting on a spending plan.

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Closing the gap

Here’s how the Legislature plans to close a $15.2-billion budget gap and keep $1.2 billion in a reserve fund. Numbers are in billions:

$7.1 billion in spending cuts*

* $2.9 from schools