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Budget Mire Forces Calif. Senate Lockdown

By Karl Vick and Keith B. Richburg
Washington Post Staff Writers
Wednesday, February 18, 2009

LOS ANGELES, Feb. 17 -- Locked inside the state Capitol until they pass a $42 billion package to fill a mammoth budget gap, California lawmakers carried sleeping bags and extra socks into the ornate Senate chamber Tuesday, settling in for a long stalemate in a state where political paralysis is becoming a way of life.

A single Senate vote was needed to pass the budget patch, and the state's political leaders were nearly out of options. Gov. Arnold Schwarzenegger, who last month issued an order shuttering most state offices two Fridays a month, began the process of laying off 20,000 state workers and suspending 270 construction projects.

The state has ceased sending out tax refunds and is on the verge of sending IOUs to contractors. No state carries a lower bond rating.

"We're just searching for that one more vote," Schwarzenegger (R) said Tuesday.

Democrats dominate both chambers of the assembly and all are for the package, but the constitution requires a two-thirds majority to raise taxes. That means three Republicans must overcome a group promise not to increase taxes. So far, two have come forward.

"What you have going on in Sacramento right now is a dysfunctional government trying to function," said Allen Hoffenblum, a Republican strategist. "There is no center in that state legislature. Things are worse than they are in Washington. What we have is a huge majority of very liberal Democrats and a small minority of very conservative Republicans."

In the morass, Hoffenblum and other observers glimpsed a ray of hope in the terms that Republican Abel Maldonado offered for his potential vote: a promise to allow California voters to consider a ballot measure to create "open primaries," ending the closed system that allows primaries to be dominated by motivated activists from both parties.

"That would be good government," Hoffenblum said.

The budget measure would trim spending by $15 billion, including $8.6 billion from funding for public schools. It would raise $14 billion in taxes by increasing the sales tax by 1 percent and the gasoline tax by 12 cents a gallon, by doubling vehicle registration fees and by levying a 2.5 percent surcharge on income taxes. The rest would come from new borrowing.

Because of a cap on property taxes, California is especially reliant on income taxes and is, therefore, hypersensitive to economic downturns. The foreclosure crisis also hit the state earlier and harder than elsewhere.

By late afternoon, arguments on the Senate floor were so well worn that legislative staff members amused themselves by playing "budget session bingo" on cards with squares marked in the terms of the tired debate.

But there was action behind the scenes. "We got the ransom note, and the ransom is reasonable," said one senior Democrat, who spoke on the condition of anonymity as he characterized the situation in criminal terms.

Sen. Dave Cox, the other Republican besides Maldonado in play, was meeting with Schwarzenegger for the third time. "Deal points are being finalized," said the assembly speaker, Karen Bass (D). "There are some courthouses we're trying to do. And he was concerned about the excise gas tax."

"I predict we'll have a budget deal passed within 24 hours," she added.

The dire situation in California is starting to be played out across the country. The Center on Budget and Policy Priorities, a liberal Washington-based think tank, estimates that as many as 46 states face revenue shortfalls in the current fiscal year because of the worsening economy.

One of the worst-affected is New Jersey, where the state treasurer estimated Tuesday that revenue for the first half of the fiscal year was $1.33 billion short of projections. For the year, the treasurer said, revenue could be down by about $3 billion.

To close the gap, Gov. Jon S. Corzine (D) ordered all state employees to take two unpaid furlough days -- one in May and one in June -- which he said would save the state $35 million. He is also using money set aside for debt relief and for the state's "rainy day fund" to cover expenses.

Much of New Jersey's added expenses comes from increased joblessness claims, which have depleted the state's unemployment insurance trust fund.

Even though states can count on an infusion of federal money from the stimulus bill President Obama signed into law Tuesday, most governors say that the one-time boost does not negate the need for longer-term cost-cutting, to get their budgets in line with falling revenue.

In New York, for example, Gov. David A. Paterson (D) said the state expects to receive $24.6 billion from the stimulus package, including $1.1 billion in highway funds for infrastructure improvements. But Paterson also said the state still faces a $13 billion deficit next year and a multi-year deficit totaling $48 billion.

New Jersey stands to get about $850 million from the stimulus package.

In Kansas, a budget impasse that forced the state to suspend the payment of income tax refunds and threatened to stop payments to state employees, schools and hospitals ended Tuesday with Gov. Kathleen Sebelius signing a budget-balancing bill.

The signing cleared the way for Sebelius (D) to move $225 million from various state accounts to cover a shortfall and help pay the state's bills. The move -- considered internal borrowing -- needed the approval of legislative leaders, who argued that the transfer was not legal until a balanced budget was in place.

Richburg reported from New York.

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