Calif. lawmakers: Deal elusive despite progress

[July 13, 2009]  SACRAMENTO, Calif. (AP) -- California's legislative leaders are reporting progress with Gov. Arnold Schwarzenegger on a deal to close the state's $26.3 billion budget shortfall, expressing hope for agreement by the end of the week.

Lawmakers from both parties said Sunday that they had made headway after a weekend of closed-door meetings at the Capitol, but acknowledged a deal remained elusive. It was unclear when legislative leaders would reconvene for talks.

"We have several more days to go," said state Assembly Speaker Karen Bass, D-Los Angeles. "I think what's most important is the talks have not broken down."

The possibility of a long sought-after budget deal comes after two weeks of acrimony and partisan infighting that had temporarily derailed budget negotiations.

Thousands of state contractors and suppliers have begun receiving IOUs as the state tries to preserve cash, and state workers have been told to take three days off a month without a pay.

Lawmakers remained at odds over how to close the budget shortfall despite a consensus that severe spending cuts were inevitable. Schwarzenegger also wanted to seek out waste and abuse in welfare, in-home support and health care programs. The governor's office has said those reforms could save taxpayers roughly $1.7 billion this fiscal year.

Over the weekend, lawmakers discussed some of those reforms, as well as proposals to consolidate state agencies to save money and generate revenue by selling state property.

The biggest test will come in the next few days when lawmakers said they expect to make difficult decisions about cuts to education and welfare. The legislative leaders must also win the buy-in of their respective caucuses once a deal is struck.

State Senate leader Darrell Steinberg, D-Sacramento, said he expected education cuts would be among the issues to be addressed by the leaders.

"We've always said it's a bad idea, and we want to look for any and every alternative, but in the end we're going to have to get a budget," Steinberg said.

"The biggest and hardest decisions are yet before us," said State Assembly Minority Leader Sam Blakeslee, R-San Luis Obispo. "Until we grapple with the question of (education funding) and the ultimate overall size of the cuts, I think it's premature to declare a victory."

Schwarzenegger spokesman Aaron McLear said a budget fix could be reached "once the will is there to make the cuts necessary to balance our budget."

The lawmakers are expected to debate whether to suspend Proposition 98, a constitutional amendment passed by voters in 1988 that guarantees a minimum level of funding for schools each year. The funding also is supposed to rise each year based on the previous budget.

State Senate Minority Leader Dennis Hollingsworth, R-Temecula, said cuts to education were inevitable because it accounts for at least half of the state's annual budget.

California's budget shortfall for the fiscal year that began July 1 comes during a deep recession that has led to an unprecedented drop in tax revenue. Personal income tax, a cornerstone of how state government funds its operations, dropped 34 percent during the first five months of the year. The latest reports from the state controller's office show that the slide has continued into the summer, widening the gap between California's spending obligations and its tax income.

The $26 billion deficit represents more than one-quarter of California's general fund spending. For perspective, eliminating all spending on state prisons and higher education wouldn't come close to erasing the shortfall.

[Associated Press; By SAMANTHA YOUNG]

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