Bloomberg News

Brown Vetoes California Budget Passed Without Tax Extension

June 16, 2011

(Updates with lawmaker comment in fifth paragraph.)

June 16 (Bloomberg) -- California Governor Jerry Brown vetoed a budget lacking the tax extensions he sought less than 24 hours after it was passed by the Democrat-controlled Legislature, continuing a stalemate over a $10 billion deficit.

Brown, a Democrat who pledged to solve California’s fiscal malfunctions without gimmicks and accounting tricks, said the budget sent to him yesterday used legally suspect techniques to paper over the shortfall.

“The budget I have received is not a balanced solution,” Brown said today in a statement. “It continues big deficits for years to come and adds billions of dollars of new debt. It also contains legally questionable maneuvers, costly borrowing and unrealistic savings. Finally, it is not financeable and therefore will not allow us to meet our obligations.”

The veto means California, the biggest issuer of municipal debt in the U.S., faces the start of its fiscal year July 1 without a budget that would let the state borrow from Wall Street to pay bills. Democrats, who don’t command enough votes to override Brown’s veto, said it’s now up to Brown to find a compromise with Republicans who oppose his tax plan.

“I’m dismayed by the governor’s action,” Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento, told reporters in Sacramento. “We are too far down the road for the governor to continue avoiding a specific proposal or specific set of proposals on what he intends to do or what he wants to be done if he can’t gain those Republican votes.”

Extending Increases

Brown wants lawmakers to fill the gap by extending more than $9 billion of expiring tax and fee increases to avert deep spending cuts to schools and public safety. He said he would ask voters to validate the move later. The governor has so far failed to find a minimum of four Republican votes he needs for the plan.

Democrats instead passed a budget that relies on a variety of one-time fixes such as delaying $3 billion in school aid for four months and penciling in optimistic revenue projections to the fill gap.

Democrats were able to pass their plan with a simple majority, thanks to a November voter initiative that lowered the threshold from two-thirds. Lawmakers faced the loss of salary and per-diem pay for every day they failed to meet a June 15 deadline for passing a spending plan.

Controller John Chiang, who issues state paychecks, hasn’t said whether the budget approved yesterday is enough to meet that requirement. The law’s language requires legislators to send the governor a balanced budget; it doesn’t say it must be enacted to clear that threshold.

“We clearly met the obligation to pass an on-time budget,” Assembly Speaker John Perez, a Los Angeles Democrat, told reporters today.

--Editors: Pete Young, Ted Bunker

To contact the reporters on this story: Michael Marois in Sacramento at mmarois@bloomberg.net; Alison Vekshin in Los Angeles at avekshin@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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