Controller John Chiang threw the budget process for a loop with his decision to block pay for lawmakers because the Democratic budget was "unbalanced." But bringing the budget into balance is not as simple as satisfying Chiang's concerns.

Chiang and Gov. Jerry Brown, who vetoed the plan, had separate reasons for objecting to the budget. Treasurer Bill Lockyer and Brown also said the budget was not financeable, meaning insufficient to borrow against.

CHIANG CONCERNS

Chiang said lawmakers still need to change laws to carry out six assumptions in the budget bill, from spending vehicle registration money to imposing a hospital fee to draw down federal funds. Lawmakers did not approve those bills, assuming they could "clean up" the budget in subsequent weeks.

Of those, Chiang said, "I don't view this as a tremendous hurdle for them."

There is one significant item that could be more difficult: a $1.3 billion underappropriation to K-12 schools and community colleges. Chiang determined the Democratic budget should have given this money according to a formula established by Proposition 98.

The Legislature disagrees with Chiang's interpretation because past budgets have underappropriated funds and resolved the payments owed at a later date.

But Chiang said the constitution leaves no room to underfund education.

"If they want to take that course, they ought to put in place an amendment in Proposition 98 that says you don't have to have the minimum guarantee in the budget when it's passed," he said.

BROWN CONCERNS

The governor never detailed what he opposed in the Democratic budget he vetoed, but said it relied on "legally questionable maneuvers."

That includes two items he has already discarded from his budget solution due to legal risks – a $1.2 billion sale of state buildings and a $1 billion taking from local First 5 commissions. Chiang never opined on those because he said he lacked the authority to judge the "efficacy and honesty" of a given proposal.

Some have raised questions about whether Democrats, on a majority vote, can enact a maneuver that results in a quarter-cent higher sales tax. It would certainly be difficult for Brown to sign such a measure given his pledge not to raise taxes without a vote of the people.

These comprise $3.1 billion in solutions beyond the $1.9 billion that Chiang cited.

FINANCEABILITY

Each year, the state needs to borrow money from Wall Street to pay its bills during the first half of the fiscal year because it receives the bulk of tax revenues in the second half.

To make the loan, Wall Street wants to know that California will have enough cash on hand to pay it back. The state can ensure this in at least two ways: 1) Approve an honest and prophetic budget that remains truly balanced over an entire fiscal year; 2) Shift pots of cash around, delay payments and force schools to borrow on its behalf.

In recent years, the state has obtained loans mostly on the basis of the second route. But Brown and Lockyer don't want to go that way.

Legislative Democrats say there is no way to build a truly honest budget without getting tax revenues. Republicans say they don't want to vote for taxes. In May, the GOP offered a plan with more cuts, but relied on some maneuvers that Brown and Lockyer have rejected.

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– Kevin Yamamura, Bee Capitol Bureau

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