California budget comes in under the wire

@CNNMoney June 15, 2011: 6:09 PM ET
California lawmakers propose budget that doesn't extend tax hikes, but cuts funds for education.

California lawmakers propose budget that doesn't extend tax hikes, but cuts funds for education.

NEW YORK (CNNMoney) -- California lawmakers unveiled a balanced budget Tuesday that cuts billions from education but likely allows them to keep collecting their paychecks.

But they are now racing against the clock to approve the spending plan and send it to Governor Jerry Brown by the end of Wednesday or face losing their salary starting the next day. The deadline was imposed by voters last November.

A balanced budget has eluded California so far this year, as Brown battled with Republican lawmakers over extending several tax hikes. The governor, a Democrat, has wanted voters to decide whether to close part of the state's $26 billion deficit with the tax extension, but Republicans have refused to approve putting the measure on the ballot.

So instead, Democratic legislative leaders drew up a plan that eliminates the tax extension and relies on a mix of cuts and other revenue measures. Because the budget proposal doesn't include a tax component, lawmakers only need a majority to approve it, rather than two-thirds. Democrats control both houses.

The proposal would send $3 billion less to schools and delay the repayment of $744 million that the state borrowed from school districts. It also depends on the tax revenues coming in higher than originally forecast, as they have been doing.

And the state's universities will see another $300 million cut in funding, while the courts will get $150 million less.

While Brown promised that the budget would not contain gimmicks, the proposal does rely on revenue shifts and one-time maneuvers. For instance, It calls for shifting some motor vehicle fees to the state general fund, while raising registration fees by $12 to support the state Department of Motor Vehicles. And it takes $1 billion from a fund dedicated to early childhood development.

The proposal would resurrect the sale of $1.2 billion of public buildings, which Brown called off earlier this year. And it would add a quarter percentage point to the local sales tax, which Democrats do not believe requires a two-thirds vote since it doesn't raise revenues for the state.

It would extend the sales levy to online retailers, such as Amazon.com, (AMZN, Fortune 500) which would bring in an estimated $200 million.

Lawmakers did their best to minimize the cuts to education, said John Vigna, spokesman for Assembly Speaker John Perez. However, they had little choice without being able to raise revenues.

"It's going to hurt a lot of people," said Vigna, adding legislative leaders worked closely with the governor on the proposal. "This budget is the best one we could get with the options on the table."

Republicans, meanwhile, blasted their counterparts' proposal, saying the state needs a more substantial fix to its budget problems.

"A majority-vote budget without Republican reforms will clearly show that legislative Democrats can't stand up to public employee unions and refuse to listen to the will of the people who want real reforms, including a hard spending cap and meaningful pension reform," said Senate Republican Leader Bob Dutton.

California's $10.8 billion budget battle

The path to a balanced budget has taken many turns since Brown unveiled a plan in January to close the state's massive shortfall by extending expiring personal income and sales tax for five years and cutting spending. He also insisted on fulfilling a campaign pledge to put the tax extension before the voters.

Two months later, the legislature approved several measures that closed $14 billion of the gap. Then, the Golden State learned in early May that tax revenues were coming in $2.5 billion higher than forecast.

Brown released a revised budget in mid May that reduced the amount the state needed to raise in taxes and to cut in spending. But Republican lawmakers refused to put the measure on the ballot without securing a spending cap and pension and regulatory reforms.

The governor held a press conference Monday, during which he opened the door to approving a budget without the continuing the levy. He would have 12 days to sign the proposal once he receives it.

"I'm going to take a good, hard look at it," Brown said, adding "we'll see what happens" when lawmakers unveil their budget plan. To top of page

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