What a difference a year makes: Without a cash crunch, lawmakers opt to wait out fiscal crisis

This week, the constitutional deadline for the Legislature to respond to the fiscal emergency declared by Gov. Schwarzenegger came and went. But Democratic leaders in both houses are slowing down new cuts to state services in hopes that the state’s economy continues to improve, and the need for cuts eases by this summer.

That slow-down strategy was on display this week as some of the most significant money-saving proposals were cast aside this week. The Senate and Assembly passed legislation that would shift existing pots of state money, leverage new federal funds and make some cuts they say will save the state about $2.8 billion. Republicans dispute those figures.

Democrats have been buoyed somewhat by revelations that the state’s cash for January came in at about $1.3 billion above projected revenues. Earlier this month, state Controller John Chiang released a report indicating the state would not face a real cash crunch until this summer.

Chiang warned the state was not out of the danger zone just yet.

“The positive receipts are welcome news, but the state cannot be lulled into a false sense of security,” said Chiang. “Our cash position falls below safe levels this spring, and goes into the red this summer. Our chronic budget shortfalls require credible and sustainable fixes in order to protect taxpayers, local governments, and state funded programs.”

But with no immediate cash shortage, Democrats are opting to wait before making deeper cuts to many of the safety net programs that have already been hit by bad state budgets.
“We want to take time with some of these decisions,” said Assembly Speaker Karen Bass, D-Los Angeles. “The idea that we would take this time right now and whack education, health and human services – obviously people were not willing to do that.”

Nathan Barankin, a spokesman for Senate leader Darrell Steinberg, D-Sacramento, said it has always been the Democrats’ plan to wait and see what the actual budget deficit number was after tax receipts are counted this spring.

“We’re watching to see what the size of the deficit will be this spring,” he said. “Once we know what that number is, we can make more informed choices about how to fill that hole by doing the least amount of harm possible.”

Another major difference from last year: The lack of attacks coming from the Horseshoe.

Schwarzenegger’s office let the fiscal emergency deadline come and go without so much as a warning shot. In fact, Schwarzenegger spokesman Aaron McLear sounded almost congenial tones this week, saying it was clear legislators were focused on the budget crisis, regardless of this week’s end product.

Unlike last February’s budget deliberations, the urgency of the state’s cash situation is not a motivating factor in the current round of budget talks. Many of the emergency budget measures taken up this week do little to help the state’s immediate cash situation. Most of the savings will not be realized until the beginning of the new fiscal year, which starts on July 1, 2010.

And there is still some major disagreement between Democrats and the administration over how to go about some of the key provisions of the Democrats’ budget plan. This week, the Assembly passed a plan that alters the way the state taxes gasoline and could slash funding for public transit.

An identical plan has been introduced in the Senate, but has not yet been taken up on the floor of that house. Schwarzenegger also introduced a gas-tax swap in his January budget proposal. Negotiations between Democrats and the administration are ongoing, and Bass said this week that she anticipates the Assembly will take up the gas-tax plan in a slightly different form in the coming days.

Schwarzenegger has vowed to veto the plan passed by the Assembly this week. The governor’s main objection is that the plan suspends a proposed change in the way businesses calculate their losses.

“We view (that proposal) as a tax increase,” said McLear. “It would discourage businesses that are doing well from creating jobs at a time when we need to be focused on job creation.”

Another major disagreement has been how school funding may be affected by the gas-tax swap. Administration officials estimate the governor’s gas-tax plan would lead to a lowering of the Proposition 98 guarantee to schools by about $800 million.

“We’re all for finding more resources for education, but we’re interested in finding out from them where the $800 million is going to come from,” said McLear.

Barankin said it made no sense to reduce education funding simply because the state’s gas-tax collection method is being changed. “Through a shell game, the governor’s proposal results in public schools getting close to $1 billion less than what they’re entitled to,” he  said. “Our objective is to not punish kids through budget shell games.”