Friday, June 17, 2011

Brown Vows to Seek Tax Extensions After California Budget Veto

June 17 (Bloomberg) -- California Governor Jerry Brown, who failed to win Republican support of tax extensions in six months of negotiations, said he'd "move heaven and earth" in another attempt after vetoing a budget without the provision.

Brown, a Democrat who pledged to solve California's fiscal malfunctions without gimmicks, didn't say how he'd get the Republican backing needed to pass his plan. His budget veto was the first in state history.

"I'm going to do everything I can, I'll move heaven and earth, to get those votes," Brown said in a news conference yesterday in Los Angeles.

Without a budget, the biggest issuer of municipal debt in the U.S. is unable to borrow from Wall Street to pay bills when its fiscal year starts July 1. Brown said the spending plan written by fellow Democrats, only the second in 25 years to meet a constitutional deadline, used legally doubtful techniques to paper-over a $10 billion deficit.

Brown didn't immediately veto all of the so-called trailer bills that accompanied the budget, including one that calls for sales-tax collections by online retailers including Inc. on Internet purchases by state residents. He said he's still reviewing the measures.

Brown wants lawmakers to bridge the deficit by extending tax and fee increases that are set to expire June 30, to avert deeper spending cuts to schools and public safety. The governor needs to persuade at least two Republicans in each legislative chamber to back his plan before it can pass.

One-Time Fixes

The Democrats' plan relied on a variety of one-time fixes, such as delaying $3 billion in school aid for four months, and optimistic revenue projections to fill the gap.

"The budget I have received is not a balanced solution," Brown said in his veto message. "It continues big deficits for years to come and adds billions of dollars of new debt. It also contains legally questionable maneuvers, costly borrowing and unrealistic savings. Finally, it is not financeable and therefore will not allow us to meet our obligations."

Brown began the year facing a $26 billion deficit through June 2012. Spending cuts passed in March and better-than- expected revenue narrowed the projected deficit to $10 billion.

Democrats were able to pass their plan with a simple majority thanks to a November voter initiative that lowered the threshold from two-thirds. Lawmakers for the first time faced the loss of salary and per-diem pay for every day they failed to meet a June 15 deadline to send the plan to the governor.

Requirements for Pay

Controller John Chiang, who issues state paychecks, said yesterday he's analyzing the Democrat's budget to determine if it met requirements for them to be paid. The law's language requires legislators to send the governor a balanced budget; it doesn't say it must be enacted to clear that threshold.

"We clearly met the obligation to pass an on-time budget," Assembly Speaker John Perez, a Los Angeles Democrat, told reporters in Sacramento.

California needs a budget in place in order to borrow what has been projected to be about $7 billion of revenue anticipation notes, short-term municipal bonds known as RANs, that the state offers annually when cash is low. The debt is repaid from later tax collections.

"The plan did not provide adequate assurance the state would have sufficient resources to repay a borrowing of that size," said Tom Dresslar, spokesman for California Treasurer Bill Lockyer. "We need additional solutions to have a financeable budget."

Vendor Pay

Without a budget by July 1, the controller can't pay lawmakers or the more than 1,000 legislative workers and gubernatorial appointees. They would get any money owed once the spending plan is signed.

Chiang also can't pay vendors who sell goods and services to the state, or send subsidies to community colleges, health clinics, foster care parents, nursing homes and daycare centers.

Republicans have jockeyed for concessions on spending levels, cuts to government pensions and business and environmental regulations in exchange for their support to put Brown's tax extensions on a statewide ballot.

"Californians deserve a budget that stands the test of time, and that requires the real reforms that they are demanding -- meaningful pension reform, a spending limit and business- regulation relief for job creation," said Senator Bob Dutton, the Republican minority leader from Rancho Cucamonga.

--Editors: Pete Young, Paul Tighe

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