California Senate fails to break budget deadlock

SACRAMENTO—The California Senate shut down at midnight Tuesday after failing to approve a stopgap plan to stave off the need for IOUs and ease the state's $24.3 billion budget deficit.

Voting along party lines, the Senate rejected three bills designed to save $5 billion, including $3.3 billion in education funding cuts that had to be enacted by Tuesday. The new fiscal year started Wednesday.

The measures fell two votes short of the two-thirds majorities needed to send them to the governor's desk, but Gov. Arnold Schwarzenegger said he would not sign any bill short of a complete solution to the deficit.

That stand brought a rebuke from Senate President Pro Tem Darrell Steinberg, D-Sacramento.

"What an irresponsible position to take when our problems are already as severe as they are," Steinberg said in asking his colleagues to support the stopgap bills. "Don't be a party to that."

Failure to approve the cost-saving measures will add to the state's deficit, perhaps by as much as $7 billion, because of the state's complicated school-financing system.

At least two Republican votes were needed to put together the two-thirds majorities required to approve the three bills, which passed the Assembly last week with bipartisan support. The Senate's 25 Democrats supported the bills, but 14 of the 15 Republicans voted no.

One Republican, Sen. Abel Maldonado of Santa Maria, abstained, but Senator Alex Padilla, D-Los Angeles, said

Maldonado's vote for the bills wouldn't have mattered.

"He would only have gotten us to 26," Padilla said.

State Controller John Chiang has said he will have to start issuing IOUs on Thursday unless lawmakers and the governor agree on a way to at least ease the state's red ink.

The Assembly and Senate previously passed a Democratic budget plan that included tax increases and spending cuts, but on Tuesday Schwarzenegger vetoed some of the bills that would implement it.

A state appeals court ruling Tuesday created more difficulties for lawmakers trying to reach a budget agreement. The decision by the 3rd District Court of Appeal barred the state from raiding local transportation funds to pay for other programs. In his budget proposal, Schwarzenegger had counted on shifting nearly $1 billion in transit money from local governments to the state.

If they are unable to take that money, the governor and lawmakers would have to find another source of funding or make additional cuts. Administration officials said they plan to appeal.

Frustration over the size of the budget shortfall and the inability to find common ground was evident on the Senate floor late Tuesday.

As midnight approached, Steinberg accused Republicans of holding the state hostage by not voting to accept the $3.3 billion in immediate savings that would avoid IOUs.

"This is craziness. There's no excuse for it," the Senate leader said.

Another Democrat, Sen. Mark Leno of San Francisco, criticized Sen. Dave Cox, R-Fair Oaks, for asking the presiding officer if he could get up and walk around while the Senate waited until midnight to adjourn, suggesting that Cox was making a joke when he should have been serious.

"We're about to lose $7 billion in just six minutes," Leno said. "The president pro tem has done everything in his power to prevent this from happening. We work in good faith. That folks are joking in this room is beyond understanding."

Senate Minority Leader Dennis Hollingsworth, R-Temecula, said neither he nor his GOP colleagues wanted to see the state resort to IOUs. But he said voters expected lawmakers to close the deficit at once, not act in piecemeal fashion.

"Getting the job done is defined as fixing the problem," he said.

Schwarzenegger's office said the governor did not want a partial fix. Aides said he believes it would let lawmakers off the hook and make it more difficult to close the entire deficit in the weeks ahead.

"If you solve for a little bit now, do we have any confidence or faith that the Legislature is going to come back to work tomorrow morning and solve the rest of it?" Schwarzenegger spokesman Aaron McLear said Tuesday.

"I think that based on the way things have gone the last couple of years in budget negotiations, I don't think that anybody in California has faith that we solve a little bit now, a little bit next week, a little bit after that."

One challenge in reaching a compromise has been Democrats' refusal to accept the deep cuts to college aid, children's health care and welfare programs contained in Schwarzenegger's budget proposal.

The governor has offered a compromise to those cuts, seeking structural reforms to state programs instead. Over the weekend, he proposed reducing state pension benefits for new hires, shifting enrollment for the state's health insurance for the poor online to reduce government jobs and requiring in-home caretakers to submit to fingerprint and background checks to prevent fraud.

He also wants reforms to the state's welfare program. In all, those measures would save California $2 billion in the fiscal year that begins Wednesday, according to his office.

California's deficit will now grow to nearly a third of the state's general fund and has been widening this year as tax revenue has plunged. That has left the state with too little money to pay all its bills.

Chiang, the state controller, has said he will have to issue about $3 billion worth of IOUs this month to state contractors, college students and taxpayers owed refunds unless there is a budget-balancing agreement. Counties will not get paid for social programs they administer.

California will not run out of cash immediately. While spending obligations will begin outpacing revenue without a balanced budget in place, the IOUs will delay a cash crisis until September. At that point, the state will be in jeopardy of running out of cash unless lawmakers figure out a way to pass a balanced budget.

The state already has a budget in place for the 2009-10 fiscal year, thanks to a two-year budget package approved in February, but the spending plan is badly out-of-balance. The main culprit is the recession, which caused a 34 percent plunge in personal income tax revenue during the first five months of the year.

By JUDY LIN Associated Press Writer

Posted: 06/30/2009 11:50:13 PM PDT

Updated: 07/01/2009 12:46:12 AM PDT

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Associated Press Writers Steve Lawrence and Don Thompson contributed to this report.

Source: Mercury News Silicon Valley

Posted: KnowledgeCreatesPower

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California, Here We Come!

By Patrick J. Buchanan

PALM SPRINGS, Calif. -- In just a few weeks time, California hits the wall. And Americans should take a good, long look at the fiscal and social wreck of the Golden Land, because California is at a place to which all of America is heading.

In May, when five fund-raising proposals were put on the ballot, Gov. Schwarzenegger pleaded with the overtaxed Californians not to make their state "the poster child for dysfunction."

As The Economist writes, "On May 18th, they did exactly that."

Arnold went to the White House for U.S. loan guarantees for new state bonds. But with the president's approval rating wilting because of a belief he is spending too much, the Obama-ites slammed the door.

In Sacramento, a Republican blocking force is resisting any new tax revenue. And with the state under a constitutional mandate to balance its budget, yet facing a $24 billion deficit this July, a chainsaw is about to be taken to state government.

Some 38,000 of 168,000 state prisoners may be released. As Barack Obama is pushing universal health insurance, California will cut Medi-Cal for the poor. Education will be slashed, resulting in a shortened school year, thousands of laid-off teachers, school closings and an end to summer programs in a system that has plummeted from the nation's best to one of its worst, as measured by dropout rates and academic achievement.

The 10 campuses of the University of California face cuts that may result in 50,000 fewer students and 5,000 fewer teachers.

What makes her fiscal crisis relevant to us all is not only that California is our most populous state, with one in eight Americans living there, but California has a gross domestic product larger than Canada's.

Moreover, the demography of California today is the demography of America tomorrow, just as the social and fiscal policies of California in the last decade mirror those of the U.S. government today.

One-third of all U.S. wage-earners today have been amnestied from paying U.S. income taxes, as the top 1 percent haul fully 40 percent of that huge load. So, too, in California, the well-to-do and the wealthy are hammered, which is why many have quietly closed their businesses, packed and gone back over the mountains whence their fathers came.

Under George W. Bush and Obama, the U.S. government has undertaken huge new responsibilities: No Child Left Behind, Medicare prescription drug benefits, wars in Iraq and Afghanistan, the takeovers of banks and auto companies, bailouts without end and national health insurance.

California, too, spent lavishly in the fat years and issued bonds when state revenues did not cover the costs, bringing its once-sterling credit rating down to the nation's lowest. So, too, U.S. Treasury bonds, T-bills and the American dollar are now increasingly suspect.

Demographically, California is where America will be in 2040.

White folks, who are leaving California as they did in the millions in the 1990s, are below half the population. Hispanics, their numbers surging due to legal and illegal immigration, are well over a third of the population. The African-American share of California's population is also falling, as the Asian share is rising, again from immigration.

Los Angeles, which is what most large American cities will look like, is the most diverse city on earth. Has diversity been a strength?

In the prisons and jails, and among the scores of thousands in street gangs and the underclass, a black-brown civil war is underway.

In October 2006, the Financial Times reported the findings of the famed author of "Bowling Alone" on what diversity has wrought:

"A bleak picture of the corrosive effects of ethnic diversity has been revealed in research by Harvard University's Robert Putnam, one of the world's most influential political scientists. His research shows that the more diverse a community is, the less likely its inhabitants are to trust anyone -- from their next-door neighbor to the mayor."

"In the presence of diversity, we hunker down," said Putnam. "We act like turtles. The effect of diversity is worse than had been imagined. And it's not just that we don't trust people who are not like us. In diverse communities, we don't trust people who do look like us."

"Professor Putnam," said the Financial Times, "found trust was lowest in Los Angeles, 'the most diverse human habitation in human history.'"

Richard Nixon and Ronald Reagan carried California nine times. But the state is now a fiefdom of liberalism. John McCain's share of the vote was smaller than Barry Goldwater's. California today believes in Big Government, open borders, diversity, multiculturalism and the politics of compassion. But what liberalism has wrought in California, its native-born are fleeing.

Still, where California is at, America is headed.

Californians who are running away from the communities and towns in which they were raised have Arizona, Idaho, Colorado, Utah and Nevada to head to. But when all of America arrives at where California is at today, where do the Americans run to?

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Mr. Buchanan is a nationally syndicated columnist and author of Churchill, Hitler, and "The Unnecessary War": How Britain Lost Its Empire and the West Lost the World, "The Death of the West,", "The Great Betrayal," "A Republic, Not an Empire"and "Where the Right Went Wrong."

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