Republicans: Calif. Budget Deal Still Far Off

By: Juliet Williams AP
By: Juliet Williams AP

SACRAMENTO (AP) - Democrats and Republicans painted starkly different pictures of the negotiations over how to solve California's $15.2 billion budget deficit on Monday, as the state entered the second month of its fiscal year without a spending plan.

The four legislative leaders again failed to compromise on a spending plan after meeting Sunday evening with Gov. Arnold Schwarzenegger.

"We're at an impasse," said Assembly Minority Leader Mike Villines, R-Clovis. "The difficulties right now are very deep, and I'm hoping we can get past them."

Democrats are seeking a combination of spending cuts and $8.2 billion in higher taxes on corporations and the wealthy. Republicans want long-term reforms to the state's budget system and oppose any new taxes.

On that, "nothing has changed since June 15," Villines said, referring to the constitutional deadline for the Legislature to pass a budget.

Senate Minority Leader Dave Cogdill, R-Modesto, said Republicans were being urged to support a temporary 1 percent increase in the
state sales tax.

The increase would be rolled back after several years and the sales tax decreased to an amount less than it is now, according to sources familiar with the budget talks who did not want to speak publicly for fear of upsetting negotiations.

The state collects 7.25 percent in sales tax, with 1 percent of that automatically sent back to local governments. Many local entities also tack on their own increases, bringing the sales tax to more than 8 percent in many parts of the state.

Cogdill said the temporary sales tax proposal was floated as a way to give cover to Republicans who might eventually vote for it as part of a budget compromise. Republicans have been insisting that the state has a spending problem, not a revenue one.

He said even if the sales tax proposal were crafted so it balanced out over time, Republicans are wary of taking any step that could hurt the state's fragile economy in the next few years.

Lynda Gledhill, a spokeswoman for Senate Majority Leader Don Perata, said Democrats have not proposed raising the sales tax and are still pushing to increase income taxes on the wealthy.

"Our plan remains the plan that it has been for the last month, more than a month - that is, personal income tax levels the same as when Pete Wilson was governor," Gledhill said.

Assembly Speaker Karen Bass sounded more optimistic about the
progress of the talks.

While Democrats oppose a firm cap on spending increases, she said they are willing to consider rewriting Proposition 58, the Schwarzenegger-backed rainy day fund voters created in 2004.

Bass, D-Los Angeles, said it could be strengthened to prevent the governor and lawmakers from easily transferring money out as they do now.

Schwarzenegger has said he will not sign a budget that fails to include structural reforms, which could include a spending cap and rainy day fund.

Democrats were hoping to broker a deal that lets them boost taxes in exchange for reforms that would win over enough Republican votes in both houses to reach the two-thirds majority required to pass a budget. Republicans so far aren't persuaded.

"We fundamentally do not believe in taxes and won't go there," Villines said. "We've not seen any language that would indicate they are serious about budget reform."

Schwarzenegger has grown frustrated by the delay and said he is worried the state will run out of cash if a deal isn't reached soon.

He increased the pressure last week by signing an executive order that laid off more than 10,000 temporary, part-time and contract workers and could roll back the salaries of thousands more to the federal minimum wage of $6.55 an hour. They would be repaid after a budget was signed.

But the wage rollback seems unlikely to take effect. State Controller John Chiang, who issues employees' paychecks, has questioned Schwarzenegger's legal authority to order the temporary pay cut. On Monday, he repeated his contention that it would take months to reprogram his agency's outdated computers to distribute paychecks based on the federal minimum wage.

At a hearing Monday, Chiang testified that it was unwise for the state to put its workers in financial jeopardy "for a situation that will be resolved in the next two or three weeks."

He has said the state has enough cash to last through September. Nevertheless, he and administration officials have met with Wall Street investment firms to discuss loans that would get the state through until a budget is adopted.

Those loans could cost California hundreds of millions of dollars in additional interest and fees.

The clock is ticking either way. Bass noted that changes to Proposition 58 and a proposal by the governor to raise money by borrowing against future lottery profits require voter approval in November. The deadline to add initiatives to the ballot is Aug. 16.
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Associated Press Writers Don Thompson and Samantha Young
contributed to this report.

(Copyright 2008 by The Associated Press. All Rights Reserved.)


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