Late-night Trading Yields Hope for Calif. Budget

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SACRAMENTO, Calif. – An early morning vote began Thursday on a deal that brought hope of a budget passage inside California's Capitol after legislative leaders agreed to make major election and government reforms in exchange for one last vote from a moderate Republican.

The vote could finally bring a drawn-out budget battle to a close after leaders agreed to ask voters to revise the state's constitution to allow open primaries for legislative, congressional and gubernatorial elections to win state Sen. Abel Maldonado's support.

Leaders also met his demands to remove a provision to increase the gas tax, freeze legislators' salaries in deficit budget years and to eliminate new office furniture budgeted for the state controller.

The Senate needs just one GOP vote to pass the budget, but Republicans in that chamber have steadfastly refused to boost taxes. The plan appears to have sufficient support in the state Assembly.

Senate leader Darrell Steinberg of Sacramento spent much of Wednesday courting Maldonado after recalcitrant Republicans ousted their leader in a midnight coup and pledged to hold out against tax increases.

"We don't want to see taxes increased, increasing the tax burden on Californians," state Sen. Dennis Hollingsworth, R-Murrieta, said Wednesday, hours after he replaced Modesto Sen. Dave Cogdill as Senate minority leader.

The proposal that has been before lawmakers since late last week is combination of spending cuts, tax increases and borrowing, which is intended to close a projected $42 billion budget deficit through June 2010.

The program cuts — some $15.1 billion, mostly to education — actually are higher than the proposed tax increases of $12 billion after Maldanado's last-minute changes. But many Republicans in the Legislature have signed a pledge against raising taxes and have decided to stick to it, even though they have not come up with a plan to close the entire deficit with cuts.

Late last year, Republicans proposed a plan they say would have saved about half that amount.

Instead, some Senate Republicans want to focus on closing the deficit in the fiscal year that ends June 30 rather than focusing on the two-year shortfall. They want the immediate deficit closed with cuts and shifting money from other accounts.

Gov. Arnold Schwarzenegger criticized that stand during a Wednesday afternoon news conference.

"If you think that you can do this without any increase in revenues, then you have a big math problem," Schwarzenegger said. "I despise revenue increases. I hate taxes. But when you're faced with that kind of a reality then that's where you have to go."

It is minority Republicans who ultimately decide the fate of California's budget process because of the state's unusual two-thirds vote requirement to pass spending plans and tax increases.

Schwarzenegger and the Democrats have said they have no appetite for reopening budget negotiations, after a difficult, two-month process produced the compromise that is currently before lawmakers.

The pressure on California lawmakers to pass a spending package has intensified during the budget impasse. Hundreds of public works projects will lose state funding on Thursday unless a budget fix is approved, throwing some 92,000 construction workers out of a job.

As tax revenue has plunged, refund checks to taxpayers have been delayed, payments to state vendors have stopped and the state's credit rating has deteriorated to the worst in the nation, preventing borrowing.

In addition to raising taxes, cutting programs and borrowing, the proposal before the Legislature would send five ballot measures to voters in a special election to be held May 19: a spending cap that was sought by Republicans; a plan to sell bonds based on future lottery proceeds; and approval to shift money from accounts for mental health and child-development programs.

The tax hikes include an increase of 1 cent on the dollar in the state sales tax and a boost in vehicle licensing fees.

A 12-cent-a-gallon hike in the gasoline tax was removed along with a 5-percent income tax surcharge for taxpayers who owe money to the state at the end of 2009. Instead, lawmakers would impose a 0.25 percent income tax increase that would drop to 0.125 percent when California gets its expected share of money from the federal stimulus bill.

Many of the tax hikes would remain in effect through the 2013-14 fiscal year if voters approve the cap on state spending during the May special election.