Bloomberg News

Brown Plans New California Budget as State Legislators Lose Pay

June 22, 2011

June 22 (Bloomberg) -- California Governor Jerry Brown has drafted a plan to pass a budget through the Legislature that sidesteps Republicans who blocked a previous effort, according to two people with knowledge of the matter.

Brown’s proposal comes as legislators have been forced to forfeit pay for every day they fail to send a balanced budget to the governor past a June 15 deadline. He vetoed a spending plan sent to him by Democrats last week, saying it used legally doubtful maneuvers and one-time fixes.

“I’ll be sharing some very specific ideas tomorrow,” Brown said to reporters as he left a meeting with Assembly Democrats yesterday. “There will be several ideas I’ll propose.”

Brown, a 73-year-old Democrat, and lawmakers are at an impasse over how to bridge a $10 billion deficit. Without a budget, the biggest issuer of municipal debt in the U.S. is unable to borrow on Wall Street to pay bills when the fiscal year starts July 1.

Brown’s plan would need only a simple majority to pass, according to two legislative aides apprised of what the governor told Democrats. The aides declined to be identified because they weren’t authorized to speak publicly about the meetings.

A straight majority vote means the plan may not include an earlier proposal aimed at balancing the budget by extending more than $9 billion of expiring taxes and fees, since that requires a two-thirds vote. Democrats are two short of that margin in each chamber. Brown has said that without that revenue, he would need to make deeper cuts to schools and public safety.

Lowest Credit

Brown took office in January on a pledge to fix the fiscal malfunctions that have left California with an A- credit rating from Standard & Poor’s, its lowest for any state. He began the year facing a $26 billion deficit through June 2012. Since then, spending cuts passed in March and better-than-projected revenue have narrowed the gap to $10 billion.

“We believe California’s near-term credit quality is affected by its budget situation more than most states because of the implications for the state’s cash position,” Gabriel Petek, an S&P credit analyst in San Francisco, said yesterday in a report. “If a budget is not adopted in time for the state to issue its revenue anticipation notes before its cash runs low, the state’s basic operating liquidity can become inadequate.”

Forfeit Pay

An $89.8 billion spending plan the Democrat-run Legislature passed hours ahead of the June 15 deadline was short $1.85 billion in revenue, Controller John Chiang announced yesterday. Chiang said he won’t pay lawmakers’ salary and expenses for every day past the deadline that they fail to submit a balanced budget, under a penalty set by voters in November through Proposition 25. The lost pay won’t be restored.

“Careful review of the recently passed budget found components that were miscalculated, miscounted or unfinished,” Chiang, a Democrat, said. “The numbers simply did not add up, and the Legislature will forfeit their pay until a balanced budget is sent to the governor.”

Brown vetoed the Democrat’s plan June 16, saying it used the kind of gimmicks and accounting maneuvers he promised he wouldn’t use.

The $95,291 annual base salary for California lawmakers is the highest in the nation, according to data compiled by the National Conference of State Legislatures. In addition, they receive about $142 for expenses each day in session. The salary for legislative leaders is as much as $109,584 a year.

‘Lot of Support’

Chiang, 48, is “going to get a lot of support from the general public,” said Joel Fox, a Republican political consultant in Los Angeles. “These are the same people who passed Prop. 25. The focus was legislators not getting paid if they don’t do their job and it worked.”

Jon Coupal, president of the Howard Jarvis Taxpayers Association, named for the author of California’s tax-limiting Proposition 13, said he expects Chiang’s decision to spur quick passage of a balanced budget.

“This will be a significant motivator,” he said by telephone yesterday. “There really was no incentive for them not to drag this out in previous years.”

Brown wanted lawmakers to temporarily retain a 1 percentage-point boost in the retail-sales levy, to 8.25 percent, and a 0.5 percentage-point increase in vehicle registration fees to 1.15 percent of value. His plan also called for extending a reduction of the annual child tax credit to $99 from $309. All were put in place temporarily in 2009 and are set to expire by July 1.

Revenue Measures

The governor said he would call a statewide election, possibly as early as September, to ask voters whether to keep the measures for five years. Republicans wanted lawmakers to pass a balanced budget without prolonging the revenue measures, and give voters the chance to reinstate the tax increases later.

After his veto last week, Brown said he’d “move heaven and earth” to get the four Republican votes needed for his plan. So far, he hasn’t met with top Republicans, according to Jann Taber, a spokeswoman for Senate leader Bob Dutton of Rancho Cucamonga, and Sabrina Lockhart, a spokeswoman for Assembly leader Connie Conway of Tulare, said yesterday.

“He has continued to speak with legislators on both sides of the aisle,” Gil Duran, a Brown spokesman, said in an e-mail.

Republicans have indicated they’d be willing to allow a referendum on the taxes after initially opposing a vote, following polls that showed voters would reject the extensions.

‘Constitutional Duties’

“I continue to maintain that the Legislature met our constitutional duties in passing the budget last week,” said Assembly Speaker John Perez, a Democrat from Los Angeles. “We carried out our responsibility to pass a budget reflecting all the options available to close the deficit without new revenues and without cuts so deep as to cost the state jobs and jeopardize our economic recovery.”

New York lawmakers have their pay suspended when budgets are overdue, said Meagan Dorsch, a spokeswoman based in Denver for the Legislature Conference. A law in Guam cuts off paychecks to the governor, lieutenant governor and senators of the territory when budgets are tardy, she said.

A Washington state law holds that lawmakers who fail to adopt a budget by the July 1 deadline commit misdemeanors, although none have been charged, Dorsch said. A 1979 opinion by the state’s attorney general concluded that while the Legislature as a whole may be guilty of a misdemeanor, individual lawmakers weren’t subject to prosecution.

--With assistance from Christopher Palmeri in Los Angeles. Editors: Pete Young, Ted Bunker

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net; James Nash in Sacramento at jnash24@bloomberg.net

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


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