Budget cuts OK'd – tougher road ahead

Lawmakers approved about $2 billion worth of emergency measures Friday to keep the state solvent through spring, but the tone of the debate signaled difficulty ahead in working with Gov. Arnold Schwarzenegger to close the remaining deficit.

The most controversial aspects of Schwarzenegger's 10 percent budget-cutting plan – including deep cuts to schools, early release of prisoners, welfare sanctions and park closures – have yet to be debated.

The Democratic-controlled Legislature's stopgap efforts also may be diminished once the state's nonpartisan fiscal watchdog releases an updated report Wednesday that may show California's revenue picture has deteriorated even more.

"Everybody dreaded this day, and I think we all have a certain dread for the weeks to come," said Senate President Pro Tem Don Perata, D-Oakland.

Schwarzenegger is scheduled today to sign the package, which reduces school funding, lowers payments to doctors who care for the poor and freezes unspent funds under a fiscal emergency he declared last month.

Those moves – along with selling $3.3 billion in bonds and delaying $1.5 billion in debt service payments – give the state enough cash to pay its bills through midsummer. But lawmakers and the governor must still deal with about half of what has been estimated as a $14.5 billion deficit through June 30, 2009.

"Now that we have proven we are capable of working together to make these difficult but necessary cuts, we must keep going and immediately tackle the next step in solving our fiscal issues," the governor said in a statement.

But on both floors Friday, Democrats and Republicans accused each other of misplaced priorities and missed opportunities.

Many Republicans balked at closing a $26 million tax loophole for purchasers of boats, airplanes and motor homes. The "yacht tax" proposal would require purchasers of boats, motor homes and airplanes to pay sales tax no matter how long the items are left out of state. It fell seven votes short of the two-thirds majority needed in the Democratic-controlled Assembly.

The GOP supported a similar bill in the Senate, and the Assembly will likely revisit the issue next week.

While the Assembly voted quickly with little debate, there were tense moments on the Senate floor, particularly when Republican Sen. Jeff Denham accused Democratic leaders of drafting the budget proposal behind closed doors.

Denham, of Atwater, said majority leaders have not inspired congeniality with a history of locking members out of their offices. On Wednesday, Perata stripped a committee chairmanship from one of his party's own members, Sen. Joe Simitian, D-Palo Alto, after the senator proposed deeper education cuts.

Perata's political forces submitted petitions to recall Denham from office after he voted against last year's budget.

"The actions that we see are not only partisan, but pathetic. … You have declared a partisan war that you will surely lose," Denham said in a shot directed at Perata.

Afterward, Perata said Denham interpreted the recall effort as "partisan retribution," but he didn't dispute Denham.

"These things will all work themselves out," Perata said.

Both Democrats and Republicans expressed displeasure in the cuts, particularly in education and payments to doctors and clinics serving the poor.

Assembly Budget Committee Chairman John Laird said even though Republicans push cuts, some were nervous about making them, while far deeper reductions are pending.

An administration proposal to exempt lower-risk parolees from supervision, known as "parole summary," was dropped during committee hearings.

"When it actually gets to cutting medical care or doing summary parole or some of the things that are on the table, they found it very distasteful to actually make the cuts," Laird said.

Sen. Sam Aanestad, a conservative Republican and oral surgeon from Penn Valley, said he did not support reducing payments to doctors who serve the poor because it would lead to fewer doctors accepting Medi-Cal.

Aanestad said lawmakers shied away from reducing salaries for teachers, prison guards and highway patrol officers with labor contracts. Instead, they went after "low-hanging fruit" in the form of reduced payments to Medi-Cal providers, he said.

Republican Sen. Dennis Hollingsworth of Temecula said lawmakers "missed opportunities" by not acting on all the governor's proposals for $1.5 billion more in savings.

Now the choices will get even harder. Schwarzenegger's budget-year proposals include cutting more than $4 billion for education, releasing more than 22,000 state prison inmates early and closing 48 state parks. He also wants to cut optional Medi-Cal benefits such as adult dental and optical care.

In setting the stage for the next round of debates, Democratic leaders vowed to protect the poor and stressed the need for new revenue. "We cannot cut our way out of this," Perata said. "We're going to have to figure out how we get some balanced revenues in there."

Assembly Republican leader Mike Villines of Clovis said GOP members remain opposed to taxes, which they say drive down overall state revenue. "Tax increases are economic disincentives," he said. Former Gov. "Pete Wilson will tell you it was a mistake when he did it," he said.

About the writer:

• Call Judy Lin, Bee Capitol Bureau, (916) 321-1115. The Bee's Jim Sanders contributed to this report.