California set to pass budget, close $9.6B deficit

By DON THOMPSON | June 28, 2011 | 3:30 PM EDT

SACRAMENTO, Calif. (AP) — California lawmakers and Gov. Jerry Brown are set to achieve something that is rarely accomplished in California: pass a budget and have it signed into law by the start of the fiscal year.

Lawmakers in both houses, who are working without pay because they missed a June 15 deadline, scheduled sessions Tuesday afternoon to vote on a Democratic budget that can be passed with a simple majority vote — and without Republican support.

Since 1991, just five state budgets have been passed by lawmakers and signed by the governor before July 1, according to the Department of Finance. Last year's budget was signed in October, 100 days past the start of the fiscal year, after the longest impasse in state history forced vendors and taxpayers expecting checks to take IOUs instead.

Democratic legislators and the governor crafted this year's budget after Brown vetoed a plan lawmakers approved June 15, the Legislature's constitutional deadline. The state controller determining the first budget was not balanced and used the provisions of a recent ballot initiative to cut off lawmakers' paychecks until they passed an acceptable plan.

The new plan relies on spending cuts, a projected $4 billion rise in tax revenue and fee increases to close a $9.6 billion deficit.

Democrats decided to act after Brown gave up on his attempts to lure the four Republican votes needed to call a special election so voters could decide whether to renew temporary sales and vehicle tax increases. Those tax hikes were passed in 2009 and will expire by the end of Thursday.

Instead, Democrat and labor groups plan to collect signatures for a ballot initiative to put tax measures before voters in November 2012.

The budget plan counts on a larger increase in income tax revenue from a recovering economy. If the projections fall short, it will trigger $2.5 billion in additional spending cuts to schools and other programs.

The budget also includes a $12 annual fee on car registrations to pay for Department of Motor Vehicle services and a $150 annual fee on homes in rural areas that depend on the California Department of Forestry and Fire Protection for wildfire protection.

Republicans and anti-tax advocates question the Democrats' decision to impose those fees without meeting the two-thirds legislative vote threshold for tax increases, raising the specter of a legal challenge after Brown signs the budget, as he is expected to do.

Republicans also criticized Democrats' reliance on an optimistic assumption about new state tax revenue, saying it was merely a strategy for the majority party to avoid making more spending cuts. Democrats and Brown already narrowed California's original $26.6 billion deficit by cutting spending and transferring money between government funds.

Democrats did not want to close the remaining $9.6 billion deficit solely through cuts. Because Brown could not persuade Republicans to call a special election on tax extensions, a compromise with his fellow Democrats was his only real option.

The governor proposed a nearly $89 billion spending plan in May, but it was not immediately clear what the total level of spending would be in the budget to be voted on Tuesday. Whatever the final number, it will represent a significant drop from the last pre-recession budget, when California's general fund spending was $103 billion.

California Teachers Association President Dean Vogel praised the plan in a statement Tuesday as the best Democrats could do without Republican support. However, the University of California system criticized the pending $650 million in cuts to the UC system, saying it will drive up tuition.

Republicans said they were disappointed because the budget does not contain the long-term reforms they sought, primarily changes to the public employee pension systems and a strict state spending cap.

The budget allows all the taxes passed by the Legislature in 2009 to expire. Without them, Californians will pay 1 cent less in sales tax for every dollar they spend beginning Friday, and the license fee for new vehicles will drop half a percentage point. A quarter percentage point rise in the personal income tax rate expired in January.

The Department of Finance estimates the tax increases have cost the average Californian about $260 a year, while raising $9 billion to $10 billion a year for the state's general fund.

State Controller John Chiang, a Democrat, began withholding lawmakers' pay and living expenses last week after he determined an earlier Democratic plan vetoed by Brown last week did not comply with Proposition 25. The initiative passed by California voters last fall blocks their pay for each day after June 15 they are late in passing a balanced budget.

Chiang spokesman Jacob Roper said Tuesday that the controller will not review the pending budget if Brown signs it because an earlier ballot measure said the governor cannot sign a budget that is not balanced.