Bloomberg News

California Democrats Find Budget Deal to Bypass Republicans

June 27, 2011

(Updates with Brown comment in third paragraph.)

June 27 (Bloomberg) -- California Governor Jerry Brown dropped his plan to extend expiring taxes to close a budget deficit and will back a new proposal based on $4 billion in higher-than-forecast revenue, additional spending cuts and a tax initiative requiring voter approval next year.

The agreement between Brown and Democrats who control the Legislature requires only a simple majority to pass, meaning Brown doesn’t need Republican cooperation to adopt the spending plan for the year beginning July 1.

“We’ve made good decisions,” Brown told reporters today in Sacramento. “It’s a good budget, but it’s not the budget I presented in January.”

Brown, a 73-year-old Democrat, took office on a pledge to fix the fiscal malfunctions that have left California with the lowest credit rating of any state from Standard & Poor’s. The Golden State, which accounts for 13 percent of the U.S. gross domestic product, began the year with a $26 billion deficit. Since then, spending cuts approved in March and better-than- projected tax revenue shrank the gap to $10 billion.

Brown said the revised budget would not address the “wall of debt” that he said has built up over the years due to accounting maneuvers.

Brown’s plan to balance the budget by extending more than $9 billion of expiring taxes and fees was blocked by Republicans. Brown vetoed an alternative designed by Democrats, saying it relied on legally questionable accounting maneuvers.

Lawmakers Forefeit Pay

Lawmakers have been forced to forfeit pay for every day they fail to send a balanced budget to the governor past a June 15 deadline.

Assembly Speaker John Perez, a Los Angeles Democrat, said that while Republican lawmakers thwarted Brown’s plan for a ballot measure this year on the tax extensions, the notion is not dead.

“The conversation has been started, and we will keep that conversation going as we move to the ballot next year,” Perez said.

Senate Republican Leader Bob Dutton said the proposal “does absolutely nothing to change government as usual.”

“The Democrats have said no to all of the Republican reforms that Californians are demanding, including pension reform, a spending cap and job creation,” Dutton, of Rancho Cucamonga, said in a statement.

--Editors: Pete Young, Walid El-Gabry

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net and 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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