Bloomberg News

Brown Vetoes California Budget Pledging to Seek Tax Extensions

June 16, 2011

June 16 (Bloomberg) -- California Governor Jerry Brown said he would keep negotiating with Republican lawmakers to extend $9 billion of expiring tax and fee increases after vetoing a budget written by Democrats that lacked the provision.

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 a $10 billion shortfall.

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 the governor to find a compromise with Republicans who oppose his tax plan.

“In the next several days, I’m going to do everything I can, I’ll move heaven and earth, to get those votes,” Brown said. “I’m certainly going to give them the chance to become heroes rather than people who become complicit in the destruction of our universities and our schools.”

Brown wants lawmakers to fill the gap by extending 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 in a later referendum. The governor needs to persuade at least two Republicans in each legislative chamber to back his plan before it can pass.

June 15 Deadline

Facing a June 15 deadline to send Brown a budget, Democrats passed a plan 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 fill the gap.

“The budget I have received is not a balanced solution,” Brown said in his veto message. “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.”

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 to send a budget to the governor.

Controller John Chiang, who issues state paychecks, hasn’t said whether the plan 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 B. 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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