SACRAMENTO — State lawmakers Thursday finally ended the three-month stalemate that brought California to the brink of financial collapse -- but now it is up to voters to keep the budget package from unraveling.
The spending plan, which wipes out a nearly $42-billion projected deficit with tax hikes, deep program cuts and borrowing, hinges on $5.8 billion contained in several ballot measures that voters must approve in a special election May 19. Gov. Arnold Schwarzenegger is expected to sign the package today.
For The Record
Los Angeles Times Monday, February 23, 2009 Home Edition Main News Part A Page 2 National Desk 2 inches; 76 words Type of Material: Correction
California budget: An article in Friday's Section A about the passage of the state budget said that the "open" primary election system approved by lawmakers -- which would allow voters to cross party lines and would have candidates of all parties competing in the same primary -- would not apply to races for governor. If it is approved by voters next year, the open primary system will apply to gubernatorial contests but not to presidential elections.
There are any number of reasons voters may not cooperate. The four temporary tax hikes in the budget are substantial and the ballot proposals would prolong them. Polls show that voter disgust with the Legislature has reached all-time highs. Some well-funded special interest groups are already plotting campaigns against the measures.
"Given how disaffected voters are and how really disgusted they are, you might find all the ballot measures could get swept away," said Democratic strategist Darry Sragow.
Voters will be asked to wrest money from mental health services, children's programs and future lottery receipts. They will be offered the opportunity to constrain future state spending -- but only if the tax hikes just passed stay in place for four years instead of two. The failure of one or more of these measures could reopen a deficit.
Lawmakers and the governor are already looking nervously toward the campaign for the measures, even as they breathed a sigh of relief Thursday when the Legislature, in lockdown for a third straight day, finally passed a budget. The plan's approval halts the state's slide toward insolvency and allows officials to once again begin paying tax refunds, vendors and public assistance recipients, though those checks could be delayed several more weeks.
"It is very important we start campaigning now," Schwarzenegger said at a Capitol news conference. Earlier in the day, he took down the clock outside his office that counted how much money the Legislature's inaction on the budget was costing California.
The governor's office immediately told road builders and local transit agencies to resume stalled construction projects. Administration officials said the budget deal may avert some of the 10,000 layoffs the governor began to implement a few days ago, but the administration is not rescinding pink slips.
The budget would temporarily raise the state sales tax, starting April 1, by 1 cent on the dollar and nearly double the vehicle license fee, to 1.15% of the vehicle's value. The package would increase personal income tax rates by 0.25 of a percentage point. A 12-cent-per-gallon increase in gasoline taxes that was initially part of the package has been eliminated -- replaced with federal economic stimulus money. The dependent credit taxpayers can claim would be reduced by $210.
An average family of four with an annual income of $75,000 would pay about $963 more a year in taxes, according to a legislative analysis.
The majority of GOP lawmakers had tried to block the increases, which would remain in effect for two to four years.
Howard Jarvis Taxpayers Assn. President Jon Coupal predicted "the beginning of a new California tax revolt. . . . Our phones are ringing off the hook. People are upset."
Those Republicans who did vote for the plan were enticed by roughly $1 billion in tax breaks for businesses. They include tax credits for film companies that keep their productions in California and small businesses that hire new employees. And the GOP lawmakers were wooed with $100 million in tax credits for buyers of new homes and millions of dollars in subsidies for horse racing tracks.
The restraints on government growth that voters will consider in May were also key to winning support from Republicans, who have been pushing such a policy for years. The ballot measure would force the state to sock away in a rainy-day fund revenue windfalls created by good economic times.
The six Republicans who voted for the plan were also satisfied by cuts in government spending that would be deep and long lasting.
For the approximately 16 months through June 2010, the plan reduces spending by $14.8 billion.
Schools and community colleges, which account for nearly half of all state spending, would take among the biggest hits, along with state colleges and universities, where tuition has been steadily rising for years. Public assistance and transit programs would be scaled back considerably.
Those concessions made by Democrats were still not enough to secure all the GOP votes they needed. So about midnight Wednesday they made one more big one.
They met the demand of Sen. Abel Maldonado of Santa Maria to rewrite election rules that he said had allowed the Capitol to become paralyzed by partisanship, leading the state to the brink of financial ruin.