Assembly passes main bill in Calif. budget package

SACRAMENTO — The state Assembly passed the main bill Thursday in a legislative package aimed at ending California's record budget impasse and closing a $19 billion deficit.

Lawmakers voted 54-1 in favor of the measure, SB870, getting just enough support in the 80-member house to reach the required two-thirds vote threshold.

The bill moved to the state Senate, where lawmakers were expected to take it up Thursday evening.

California has been without a budget for a record 99 days into the current fiscal year, a delay that has left the state on the brink of issuing IOUs and cutting off funding for road projects.

The budget package contains no new taxes or fees, and just 40 percent of the gaping deficit would be closed by additional spending cuts. The rest would be addressed through rosy revenue assumptions and creative accounting.

The plan also counts on the state receiving $5.3 billion from the federal government, far more than it has received so far.

In addition, it assumes a statewide economic recovery that will generate an additional $1.4 billion in tax revenue.

If those assumptions fall short, the difference will be added to the budget deficit that will greet Schwarzenegger's successor in January.

"In the era of the Great Recession, there is no such thing as a perfect budget," said Assembly Speaker John Perez, D-Los Angeles. "This is a budget that reflects the compromises necessary to find a two-thirds majority."

Senate President Pro Tem Darrell Steinberg, D-Sacramento, predicted Thursday the budget would pass but acknowledged it would likely have to be revisited in coming months.

"We know we'll be back at it, but we also get a fresh start — a new legislative session and a new governor," he told reporters.

Also under the deal, nearly $2 billion in payments to K-12 schools and California's community colleges would be delayed until the next fiscal year.

If approved, the budget would allow Schwarzenegger to claim victory in two of the three areas of reform he demanded as a condition of signing a spending plan.

Lawmakers agreed to ask voters in 2012 to approve a larger rainy day fund to build a cash reserve for future economic downturns. They increased the maximum size of the fund from 5 percent to 10 percent of general fund revenue.

The legislative leaders and most of the state's public employee unions also agreed to pension reforms that included higher retirement ages for state employees hired after Nov. 10 and higher contribution rates for all state workers.

The largest state employees' union, Service Employees International Union Local 1000, reached agreement on a tentative contract late Wednesday.

The budget plan does not include the tax changes the governor had sought, including recommendations released last year by a commission created by the governor and Democratic leaders. Schwarzenegger spokesman Aaron McLear said the governor will keep pushing for tax changes he believes are needed to solve California's long-term budget imbalances.

The national recession has forced lawmakers and the governor to make tens of billions of dollars in spending cuts in the past two years as state tax revenue plummeted. This year's $19 billion deficit amounts to more than 20 percent of the state's $87.5 billion general fund, which was as high as $103 billion as recently as the 2007-08 fiscal year.

Assembly Minority Leader Martin Garrick, R-Solana Beach, highlighted what he described as the budget proposal's three main accomplishments.

The plan "doesn't hurt struggling taxpayers, out-of-work Californians and economic recovery, brings the state closer to living within its means and benefits the state this year and into the future," he said Thursday.

As lawmakers work toward a final deal, the state's ability to meet its financial obligations was a mounting concern.

The state needs a signed budget in order to start borrowing money to bridge the cash shortage that is typical each fall before the springtime influx of tax revenue, said Joe DeAnda, a spokesman for the state treasurer's office.

However, the record-late budget is making it more difficult for the state to issue long-term bonds to support $7 billion worth of public works projects this fall, he said.

The state will need short-term borrowing as soon as possible, said Hallye Jordan, a spokeswoman for the state controller's office, which will announce Friday if California will need to issue IOUs for lack of cash.

"Bottom line is, we've got $8 billion in payments we couldn't make through October — unprecedented, a three-month delay in our payments," Jordan said. "They'll be payable with the enactment of the budget, and we don't have enough cash flow. We'll have to do something."

Copyright 2010 The Associated Press.

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