State finally has a budget

SACRAMENTO — California lawmakers approved a revised budget Friday after wrangling for nearly 20 hours over a $24 billion fiscal plan that Gov. Schwarzenegger said would cure a staggering deficit and rescue the state "from the darkest of storms and the harshest of winds." But the turbulence of the worst financial crisis faced by California government since the Great Depression won't be stilled until Schwarzenegger takes out his "blue pencil" to enact additional line-item spending cuts.

The governor said he intends to make more cuts in the next few days to leave the state with an emergency budget reserve. He is expected to sign a final budget Tuesday.

The governor said he would be looking for additional budget savings after the Assembly rejected key Schwarzenegger proposals to open up the Santa Barbara coast for new oil drilling and shift $1 billion in gas taxes from cities and counties.

The plan to allow offshore drilling at Tranquillon Ridge, expected to bring $100 million to the budget solution, passed in the state Senate by 21-18 early Friday morning.

But it was voted down, 43-28, in the Assembly after a series of highly charged speeches by Democratic lawmakers who recalled the environmental devastation of the 1969 Santa Barbara oil slick.

The Assembly also parted with the Senate by rejecting the gas tax scheme passed in the upper house. Local governments had charged that the plan was illegal and vowed to sue.

"Assembly members on both sides of the aisle were deeply concerned about taking gas taxes away from local governments," said Assembly Speaker Karen Bass, D-Los Angeles. She added: "We are protecting the still vital local governments."

Although the gas tax proposal failed, the budget plan retains a $1.7 billion shift in local redevelopment revenues into the state's general fund.

The plan also slashes billions of dollars from almost all state programs, reduces state workers' pay through furloughs and reforms some of the ways the state does business.

Both houses approved funding cuts of $5.7 billion from elementary, high schools and community colleges, $2.8 billion from state colleges and universities, $2 billion from health programs and $1.2 billion from the prison system.

The budget also takes $1.2 billion from social services and tightens eligibility rules for CalWORKs, the state's welfare-to-work program. It also adds oversight to the In-Home Supportive Services program providing aid to the elderly and infirm.

"This is not an easy budget. It is a tough budget but a necessary budget," Schwarzenegger said Friday afternoon. "Today California commits itself to a government that is sustainable."

$1.1 billion vanishes

Exhausted lawmakers squabbled over budget details from early Thursday evening to Friday afternoon — only to finish up by leaving the state about $200 million in the hole.

After originally planning on plugging a $26.3 billion budget gap, the governor and legislative leaders were counting on a $24 billion final package that included a smaller budget reserve of about $900 million.

But $1.1 billion in that $24 billion plan vanished when the Assembly rejected the oil drilling and gas tax proposals.

"We've lost our reserve and are in negative territory," said deputy finance director H.D. Palmer. As a result, he said, the governor's staff was looking to identify line-item veto cuts "to use blue-pencil authority to get back to as reasonable a reserve as we can."

Dan Jacobson of Environment California hailed the Assembly's decision.

"The Assembly beat back the waves of oil lobbyists who wanted to open our coast to oil and gas drilling," he said in a statement.

Bass said the drilling measure could well be revisited if the state faces more fiscal problems after lawmakers reconvene Aug. 17.

"I can't declare that offshore drilling is dead in California," she said.

Lawmakers Friday came to an agreement on a key budget hurdle to cut deeply into funding for elementary and high schools and community colleges.

The schools bill included a pledge that all of the cuts would be restored in future years. Republican legislators objected to locking the state into a guaranteed repayment, but the GOP ultimately provided the votes needed to reach a two-thirds majority.

State finance officials say it may take weeks before the completed budget can be translated into an end to state-issued IOUs.

Hallye Jordan, a spokeswoman for state Controller John Chiang, said Friday: "As soon as Controller Chiang determines there are sufficient funds to meet all of our payment obligations, he will pull the plug on IOUs and begin sending regular checks."

Schwarzenegger said he also expected California's sagging credit rating to rebound with the new budget deal. But he acknowledged the far-reaching impacts of the state's difficult fiscal decisions.

"I know college students will pay higher fees," the governor said. "I know that teachers will be laid off. I know that state workers will get less money. But we have to do this. ... It saves our state from financial ruin, from falling into the abyss."

Still, legislative leaders wondered whether California's fiscal troubles are over.

"Nobody likes this budget because there is not much to like about it," said Senate President Pro Tem Darrell Steinberg, D-Sacramento. "But we are at least resolving it, at least for now."

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