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California Budget Deal Leaves GOP out in Cold

Posted 12 years 244 days ago ago by     Wall Street Journal — California's legislature passed a Democrat-crafted plan late Tuesday to close a budget gap that initially stood at $27.6 billion—the first time in decades that state lawmakers approved a budget without Republican support in a move that could have far-reaching consequences for California.

The $86 billion spending plan for the fiscal year starting Friday was endorsed Monday by Democratic Gov. Jerry Brown after he earlier vetoed another budget passed by the legislature. The new budget was approved by just over half of each house of the legislature, the first such budget since California voters last year reversed a decades-old law requiring budget approval by two-thirds of lawmakers. The reversal meant the budget could pass with support from only Democrats.

Democrats remained hamstrung, however, by a requirement that any measure to raise taxes must still gain the support of two-thirds of lawmakers.

The plan includes $15 billion in what the Democrats call "expenditure reductions," including $1.7 billion in cuts to higher education and $1.6 billion in cuts to health care for low-income Californians, but also including moves such as collecting $1.7 billion from community redevelopment agencies. In addition, the budget assumes $8.3 billion in additional state revenue will come in since a January estimate—some of which has already appeared as the economy has improved.

An additional $3.8 billion will come from areas such as delayed loan repayments, revenue shifted from other funds and a higher vehicle-registration fee. Finally, the plan decreases the state's reserve fund to $500 million from the $1 billion the governor earlier hoped for.

Mr. Brown endorsed the budget after failing to come to agreement with Republicans on a plan that included extending some expiring tax increases to raise about $11.2 billion. That plan would have required four GOP votes because of the two-thirds requirement. Mr. Brown had spent six months on a high-profile campaign to win over the Republican votes before giving up on Monday.

If the governor signs the budget before Friday, as expected, it would mark the first time since 2006 that a California budget was approved before the start of the fiscal year. The state's budget has often been delayed for months into a new year.

Yet Mr. Brown's inability to win his longed-for tax extensions makes the victory bittersweet. At a press conference Monday, he characterized the Democrats' plan as a less desirable alternative to his earlier proposal, in part because it contains one-time fixes.

California's budget is closely watched because the state is the most populous, has the largest economy and issues the most debt of any state in the U.S.

In budget talks of past years, Republicans typically extracted policy changes such as corporate tax breaks in exchange for their budget votes. But this year, their refusal to extend taxes left them with little negotiating power.

"We started a dialogue to put a cap in state spending, and we also asked for a reform in public pensions," Sen. Bob Huff, the Republican vice chairman of the senate budget committee, said in floor comments. But he said Republicans were ultimately "iced out" of the budget process.

Republicans' absence from budget-making is expected to be especially noticeable during boom times and under Democratic administrations, when Democrats could potentially raise spending more than in the past and wouldn't require Republican help to do so, said Bruce Cain, a political-science professor at the University of California, Berkeley.

However, a budget supported only by Democrats cannot boost or extend taxes unless Democrats make up two-thirds of the legislature. So during tough times—such as this year, as California emerges from recession—Republicans can still stymie Democrats by blocking their attempts to raise revenue through taxes.

"One hand is still tied behind the majority party's back," Sen. Mark Leno, the Democratic chairman of the senate budget committee, said in comments on the senate floor.

This year, that left Democrats relying partly on deep cuts to a wide range of services. The budget also borrows from other funds, delays loan repayments, includes provisions expected to see legal challenges and builds in revenue estimates that some economists believe to be too optimistic.