Let's Try This Again

With time running out for a budget compromise, California lawmakers returned for a second day of negotiations Thursday after an initial round of voting failed.

The Senate and Assembly had scheduled sessions for Thursday morning, but it was not clear what would be accomplished after a Democratic package of proposed spending cuts failed the day before.

Lawmakers have one week to make adjustments to the state's spending plan for the coming fiscal year, which begins Wednesday. They are trying to bridge a $24 billion gap through the middle of next year and must do so amid GOP opposition to higher taxes.

The state controller has announced he will have to issue IOUs to thousands of state contractors starting July 2 unless a balanced budget is in place.

On Thursday, the Legislature began taking steps to avoid IOUs when the Assembly passed three bills that would delay about $4 billion in payments. The bills include delaying payments by several months to K-12 districts, the University of California, the California State University and community colleges.

It was not immediately clear how that action would affect public schools or the state's higher education systems.

"Anything that will allow us to avoid IOUs is extremely helpful, not only for California residents who would receive those but also the state's short-term and long-term essential cash borrowing needs," Hallye Jordan, a spokeswoman for the state controller's office, said after Thursday's vote. "We are evaluating the impact these three bills will have on the state's cash position."

Democrats could pass the portion of their plan calling for $11 billion in cuts on a simple majority vote, but it requires a two-thirds vote -- and GOP support -- to take immediate effect. Republicans say they want more cuts.

It's not clear whether Gov. Arnold Schwarzenegger would sign a bill dealing with only part of the deficit. He said he would not support additional taxes on oil drilling, tobacco products and vehicle licensing, as Democrats have proposed in the rest of their package.

Both houses exchanged cutting remarks on the state's budget mess Wednesday, and little progress was expected Thursday. Republicans criticized the Democratic plan for not going far enough to address the deficit and complained of being left out of the process.

Noreen Evans, chairwoman of the Assembly Budget Committee, said GOP members had plenty of time to offer solutions when they sat on the committee that crafted the budget revision. That plan passed out of committee on a purely partisan vote, with all Republicans opposing it.

"That was the time these things should have happened and they didn't do it," said Evans, D-Santa Rosa.

Democrats are proposing $11 billion in spending cuts and $2 billion in higher taxes on oil drilling and tobacco. Their plan also relies on filling the hole with $5 billion in fees and accelerated revenue through earlier collection of personal and corporate income taxes, and $5 billion in other solutions.

One of those additional solutions has been criticized as a gimmick that would just push the problem into another fiscal year: The provision would defer state employee paychecks by one day -- from June 30, 2010, to July 1, 2010 -- so about $1.2 billion would be counted against the 2010-11 fiscal year instead of the one that starts next week.

Schwarzenegger's plan would cut spending by $16 billion, borrow $2 billion from local governments, take $6 billion from other government accounts, accelerate personal and corporate income tax collections, and cut state employee pay by another 5 percent.

Both plans would raise $1 billion by selling the State Compensation Insurance Fund, a quasi-governmental agency that is the state's largest writer of workers' compensation insurance.

Republicans have not offered their own plan. Senate Minority Leader Dennis Hollingsworth said GOP members could support the governor's plan if it does not rely on borrowing from local government and reduced cuts to prisons.

"We'd like to see some of the gimmicks that are in both plans minimized," Hollingsworth said Wednesday after the Democratic plan failed to muster sufficient support. "But you'd see Republican support in pretty good numbers for the governor's plan if it was presented on the floor today, is my guess."