Combination of Deals, Debt Could Yield On-Time Budget

Sacramento — People are beginning to imagine the previously unimaginable in Sacramento: that legislators may actually pass a state budget on time.

They’ve failed for 14 of the last 17 years to pass a spending plan by the July 1 start of the new fiscal year. Everybody yawns through the constitutional deadline of June 15 for legislative passage of a budget. Last year, lawmakers and Gov. Gray Davis squabbled for 44 days past that legal deadline.

Hitting the elusive July 1 target would spare private vendors anguish and ensure they’d be paid while doing business with the state. It would signal Wall Street bond-buyers that California was getting its act together. And it would be another step toward the politicians’ primary goal: restoration of some public confidence in their competence.

But to envision enactment of an on-time budget, one has to imagine:

* Gov. Arnold Schwarzenegger cutting more deals with budget “stakeholders” -- the politically correct name for special interests -- to effectively take controversial items “off the table” before the governor and legislative leaders begin their bargaining.

* Democrats running up the white flag on taxes, sparing the Capitol a heated summer brawl.

* The governor and Legislature deciding to procrastinate and punt, again, rolling over debt into the next year and postponing the inevitable confrontation with deficit spending.

There are signs that all this may become reality.

The latest interest group Schwarzenegger is negotiating with is higher education. Settling with the universities presumably would tone down higher ed protests against the governor’s budget cuts and discourage legislators’ attempts to restore funding.

The governor’s formula for compromise is the same as it has been for other interests: Accept cuts now to help balance the budget and receive stable funding increases later.

Schwarzenegger began bargaining with stakeholders last December when he cut a deal with K-12 school interests, including powerful teachers unions. He got $2 billion from them for the 2004-05 budget.

The governor currently is near an agreement with local governments to take $1.3 billion annually for the next two years. In return, he’d support their proposed ballot measure to protect cities and counties from future state raids.

“We have a framework that both sides have agreed on,” says H.D. Palmer, the governor’s budget spokesman. Local councils and boards are examining the “framework.”

Schwarzenegger also is negotiating with Indian gambling tribes and state employee unions for mutual concessions.

In the higher ed talks, the two sides are haggling over the governor’s proposed cuts of $374 million for the University of California and $311 million for the California State University system. In exchange for surrendering peacefully, the two universities seek reestablishment of a so-called “compact” agreed to by Gov. Pete Wilson. (Davis renamed it a “partnership.”) It provided for financing enrollment growth, plus 4% annual funding boosts, but was torn up when deficit spending soared.

“We’ve had discussions,” says Palmer, “but nothing’s completely baked.” University negotiators say they’re hopeful.

Meanwhile, there’s another negotiation occurring that could expedite budget passage because a deal would pacify community colleges.

This bargaining is between K-12 interests and the community colleges over their split of Prop. 98 funding. Years ago, the colleges got nearly 11%. That has dropped to around 10%, and the colleges are trying to boost it back to near 11%. Each one-tenth of a percent means $46 million.

Community colleges expect dramatic enrollment growth in the next few years. Moreover, they have been growing significantly in political clout.

“We’re close to an agreement,” says Mary Bergan, president of the California Federation of Teachers.

Deep spending cuts are considered inevitable because the budget hole, at last count, was $14 billion. Schwarzenegger will update the figure when he presents a revised budget May 13.

Democrats are backing away from earlier calls for tax increases -- even if a recent Times poll did show that most voters expect to dig deeper and favor socking the highest income earners, smokers and boozers. In other words, people favor taxing everyone but themselves.

This is an election year, after all. Some Democrats probably wouldn’t even vote to raise taxes.

“We’re tired of leading with our tax chin,” says Assembly budget chairman Darrell Steinberg (D-Sacramento).

“Rather than focusing on taxes, the more important question is how much are we willing to cut in important public investments. At some point, you draw the line. We’ve got to have an honest and forthright discussion about what we value.”

That promises to be a long discussion -- one that lingers into the next year.

Schwarzenegger has been all over the lot on taxes -- first declaring he’d raise them only in an emergency, then “guaranteeing” he wouldn’t at all, and recently conceding this may be “wishful thinking.”

He certainly wants to avoid a tax hike during his first year in office. Punt. Postpone the pain. Search for waste and hope for an economic boom. Democrats won’t argue much.

Is this the courageous move? No. But it’s the political move and it’s inevitable. Hopefully, there’ll be little to fight about and they’ll surprise us with an on-time budget.