"I Don't Know How to Find Another $1.9B"

The optimism that began the week when a deal was announced to close California's $26 billion budget deficit gave way Friday to the workaday reality of pushing its many parts through a highly partisan legislature.

Throughout the week, the legislative leaders of the Senate and Assembly had said there was much to dislike in the complex legislative package, and indeed there was.

Debate and voting began about 7 p.m. Thursday and was lurching forward into the early morning hours of Friday, as lawmakers were finding it difficult to agree on some of the more controversial aspects of the budget-balancing agreement.

Failure to pass any one of the 31 bills could jeopardize the entire deal, sinking California further into fiscal chaos.

Early Friday, as the Senate was failing to pass a bill seeking to borrow nearly $2 billion from local governments, the Senate leader said he had run out of options for trying to close the state's enormous revenue shortfall.

"I don't know how to find another $1.9 billion, members," Senate President Pro Tem Darrell Steinberg, D-Sacramento, told his fellow lawmakers. "If you think the deal is a bad deal ... then please come forward with the way you would make up $1.9 billion that would gather the political support and the two-thirds vote necessary to avert further catastrophe for this state that we all love."

The local borrowing provision was one of several aspects of the budget-balancing compromise that faced an uncertain fate in the Legislature.

Among the most controversial bills is one to allow expansion of oil drilling off the Santa Barbara coast. Critics called it an end run around the public process and said it was almost certain to face a legal challenge. The Senate passed it on a simple majority vote.

In a sign of how tenuous the budget agreement had become, Steinberg said he would miss a Friday morning flight to Hawaii with his family, indicating more time was needed than he originally thought.

The compromise before the 80-member Assembly and 40-member state Senate was announced Monday by Gov. Arnold Schwarzenegger and the Democratic and Republican leaders of each house.

It eliminates nearly 60 percent of a projected $26 billion deficit with spending cuts. The rest is reached by one-time raids on local government funding and accounting maneuvers, such as deferring state employee paychecks by one day for a savings on paper of $1.2 billion.

Both houses quickly passed a key bill that enacts cuts to higher education, college grants, health programs, welfare, in-home supportive services and state prisons, but it was the measures that attempted to fill the rest of the deficit that were proving more difficult.

Some required two-thirds approval, meaning they needed support from a handful of Republicans, the minority party in each house.

Legislative leaders have acknowledged the solution is imperfect and cuts deeply into basic programs, including education, prisons, health care and welfare. But they say it is vital to address the state's cash-flow crisis.

"It's even worse to not have it in place," said Assemblywoman Noreen Evans, D-Santa Rosa.

The state Senate's minority leader, Republican Dennis Hollingsworth, noted the plan closes the deficit without raising taxes. He also said it includes reforms to welfare and social service programs that Republicans believe will save the state money in the years ahead.

California's budget shortfall represents nearly 30 percent of its $92 billion general fund. The revision would bring total spending down to about $88 billion, an amount that would return state spending to 2005 levels.

The nation's most populous state has been hammered by the national recession, leading to a steep plunge in income, sales, property and capital gains taxes.

The cash crisis and the lack of a balanced budget have forced the state to issue IOUs to thousands of state contractors and vendors. Closing the shortfall is expected to allow the state to obtain short-term loans, eventually ending the need for the IOUs.

The rapid decline in tax revenue and Republicans' insistence on no tax increases have left the state with few options.

The attempt to take or borrow nearly $5 billion from cities and counties over two years was proving to be one of the most difficult aspects of the budget deal.

Several big-city mayors criticized the raids on Thursday and said at least 130 local governments have agreed to sue the state to block the transfer of some money.

Under the budget package, the state would borrow $2 billion from local governments' property tax revenue and repay it with interest within three years. It would take another $1 billion in redevelopment money and $1 billion in local transportation funds.

Facing withering criticism from counties and cities, the legislative leaders early Friday agreed to alter part of the plan, committing to repay the transportation money over 10 years rather than take it outright.

Copyright Associated Press