Apocalypse now: California Lawmakers Struggle to Strike Budget Deal

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Paul Krugman - NYTimes.com

Everyone should be paying attention to the political/fiscal catastrophe now unfolding in California. Years of neglect, followed by economic disaster -- and with all reasonable responses blocked by a fanatical, irrational minority.
This could be America next.

NYTimes.com

The state of California -- its deficits ballooning, its lawmakers intransigent and its governor apparently bereft of allies or influence -- appears headed off the fiscal rails.
Republican senators reconvened Monday after negotiations over the weekend ended in the rejection of a budget deal. Since the fall, when lawmakers began trying to attack the gaps in the $143 billion budget that their earlier plan had not addressed, the state has fallen into deeper financial straits, with more bad news coming daily from Sacramento. The state, nearly out of cash, has laid off scores of workers and put hundreds more on unpaid furloughs. It has stopped paying counties and issuing income tax refunds and halted thousands of infrastructure projects.
Twenty-thousand layoff notices will go out on Tuesday morning, Matt David, the communications director for Gov. Arnold Schwarzenegger, said Monday night. "In the absence of a budget we need to realize this savings and the process takes six months," Mr. David said.
After negotiating nonstop from Saturday afternoon until late Sunday night on a series of budget bills that would have closed a projected $41 billion deficit, state lawmakers failed to get enough votes to close the deal and adjourned. They returned to the Capitol on Monday morning and labored into the evening but still failed to reach a deal. They planned to reconvene at 10 a.m. Tuesday to go at it again.
California has also lost access to much of the credit markets, nearly unheard of among state municipal bond issuers. Recently, Standard & Poor's downgraded the state's bond rating to the lowest in the nation.
California's woes will almost certainly leave a jagged fiscal scar on the nation's most populous state, an outgrowth of the financial triptych of above-average unemployment, high foreclosure rates and plummeting tax revenues, and the state's unusual budgeting practices.
"No other state is in the kind of crisis that California is in," said Iris J. Lav, the deputy director of the Center on Budget and Policy Priorities, a liberal research group in Washington.
The roots of California's inability to address its budget woes are statutory and political. The state, unlike most others, requires a two-thirds majority vote in the Legislature to pass budgets and tax increases. And its process for creating voter initiatives hamstrings the budget process by directing money for some programs while depriving others of cash.
In a Legislature dominated by Democrats, some of whom lean far to the left, leaders have been unable to gather enough support from Republican lawmakers, who tend on average to be more conservative than the majority of California's Republican voters and have unequivocally opposed all tax increases.
And then there is Governor Schwarzenegger, whose budget woes far outweigh those of his predecessor, Gray Davis, whom he drummed from office in a 2003 recall that stemmed from the state's fiscal problems at the time. The governor has failed to muster votes among lawmakers in his own party, whom he often opposes on ideological grounds, resulting in more scorn from Democrats.
Furthermore, Republican leaders in the Senate and the Assembly who have agreed to get on board with a plan have been unable to persuade a few key lawmakers to join them. The package needs at least three Republican votes in each house, to join with the 51 Democrats in the Assembly and the 24 Democrats in the Senate.
For months Republicans have vowed not to raise taxes, which in California means no increase in either the sales, gas or personal income tax.
"It is a dramatic time," said Darrell Steinberg, the State Senate's president pro tempore. "The solvency of the state is on the line. It is really quite a system where the fate of the state rests upon the shoulders of a couple of members of a minority party. The system frankly needs to be changed."
In the meantime, drivers are met with "closed" signs at Department of Motor Vehicles offices two days a month, environmental programs are left unattended, piles of dirt mark where highway lanes are to be built to ease the state's infamous traffic congestion, school systems mull layoffs and counties prepare to sue the state for nonpayment of bills.
Last week, Mr. Schwarzenegger and the four legislative leaders concurred on a series of bills that included $15.1 billion in budget cuts, $14.4 billion in tax increases and $11.4 billion in borrowing, much of it subject to voter approval.
The Senate Republican leader, Dave Cogdill, said he thought he had all the votes needed to get the deal done in each house. But on Sunday, two Republican senators -- Dave Cox, who was originally thought to be the last vote needed, and Abel Maldonado, whom Mr. Schwarzenegger had been able to woo into voting against his party in the past -- said they would reject the plan.
Democrats, who had already given into Republicans' long-held dreams of large tax cuts for small businesses and for some of the entertainment industry and a proposed $10,000 tax break for first-time home buyers, balked at Mr. Maldonado's request that the Legislature tuck a bill into the package that would allow voters to cross party lines in primaries.
"I think with an open primary, we would have good government that would do the people's work," Mr. Maldonado said.
Sunday evening ended in frustration and exhaustion for lawmakers, who returned to work on Monday facing the state's uncertain future.
"My boss will continue to work toward a responsible budget solution," said Mr. Cogdill's spokeswoman, Sabrina Lockhart. "There are real risks and real consequences for not passing a budget."

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