Budget posturing portends a prolonged standoff

A News Analysis- The battle lines have been drawn for this summer’s budget fight, with Senate Democrats touting plans for new tax increases and cuts and Assembly Democrats unveiling an elaborate budget maneuver that leads to new taxes on oil production and virtually no cuts to the state’s safety net. The trick, now, is figuring out which pieces of these proposals – and Gov. Arnold Schwarzenegger’s May budget revision – are real.

Assembly Speaker John Perez, D-Los Angeles, and his staff came up with the most creative of the budget proposals, revealed in a press conference this week in the Capitol.
The Perez plan would essentially create a new 10 percent tax on oil production – known in the Capitol as the oil severance tax. Through a complicated series of budget maneuvers involving Wall Street loans and the state’s recycling fund, the state would, in essence, immediately borrow against the first 20 years of that anticipated oil revenue to backfill cuts in Schwarzenegger’s budget proposal, and make scheduled debt repayments to public schools and local governments.

Democrats have heard for months that suspension of certain tax breaks for corporations and new taxes were non-starters with their Republican counterparts. But that did little to stop a Senate budget subcommittee from adopting plans to do both.

Backed by Senate leader Darrell Steinberg, D-Sacramento, the subcommittee adopted proposals to extend an earlier increase in the personal income tax and reducing tax credits for Californians who claim dependents on their tax returns. The senate also voted for a $1.2 billion increase in the vehicle license fee and a 60 percent hike in alcohol levies.

Meanwhile, Schwarzenegger has called for a budget centered on dramatic cuts to social programs, including the elimination of the state’s welfare program, CalWORKS.

All sides admit that these plans represent an early bargaining posture, and that most of these proposals will be significantly changed at best  and possibly disregarded altogether. The trick is trying to figure out which pieces of the budget proposals may wind up as part of the final budget deal.

Perez said his plan represents his caucus’s best plan, but that he was open to having the proposal go through an open vetting process. Schwarzenegger spokesman Aaron McLear, meanwhile, dismissed the proposal as “legal gymnastics” and dismissed the speaker’s entire plan out of hand.

But could pieces of the Perez plan find their way into the final budget?

It would allow Democrats to pass a new oil production tax without any Republican support, because of the way the proposal is constructed. It seems unlikely that Republicans would consent to having the first 20 years of those revenues – an estimated $8.7 billion –  used to fill one year’s worth of budget cuts. Even Steinberg’s budget proposal calls for some of the social program cuts contained in Schwarzenegger’s proposal.

For now, however, Republicans are not moving off of their talking points – at least in public. “We have no interest in thinly veiled schemes for majority-vote tax increases,” McLear said Tuesday. “We have raised taxes by $12 billion. Voters had the option of extending those tax increases and they rejected those plans by a 2-1 margin.”

Senate Budget Chairwoman Denise Ducheny, D-San Diego, said the time has come to have a candid conversation about the budget, a conversation that is likely to “make everybody really mad.”

Complicating the talks is the governor’s repeated demands that a budget proposal pass in tandem with legislative changes to the state pension system and the budget process.
Democrats have called on the governor to extract concessions from state employees through the collective bargaining process with union leaders. But the administration believes union leaders are content to wait until Schwarzenegger leaves office and hold off serious negotiations until there is a new governor.

That’s not the only way that the November ballot is complicating this year’s budget talks.

In addition to the governor’s race, there are also measures headed for the November ballot that could transform the state’s budget process.

First is a measure backed by the California Teachers Association that would roll back corporate tax cuts that could cost the state more than $2 billion in the next fiscal year. Both Perez and Steinberg have called for those tax cuts to be delayed, but Republicans have refused.

Another ballot measure supported by Perez and Steinberg would allow budgets to be passed by a simple majority vote instead of the current two-thirds requirement. A prolonged budget standoff and a display of state government gridlock might actually help make the case for that ballot measure.

This is also Gov. Schwarzenegger’s final budget. While administration officials have said that has no bearing on this year’s budget talks, the budget remains one of the last major leverage points Schwarzenegger has in dealing with lawmakers before his term expires.

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