In the theater or the movies, we'd call this the beginning of Act Two. In baseball, it's probably the sixth inning.
We now have two relatively complete looks at how to resolve the gaping hole in the state budget -- one from Governor Schwarzenegger, one from legislative Democrats -- with the Dem plan headed for a vote on the floor of each house as soon as Monday.
The Democratic plan comes in at $23.3 billion over the 15-month fiscal period in question, compared to Schwarzenegger's $24 billion plan. Sounds close, but the details are the problem... no surprise there.
The governor proposes about $16 billion in cuts, while Dems have countered at $11.4 billion. Schwarzenegger pitched about $4.7 billion in borrowing, fees, and revenue acclerations (a technical way of saying extra revenue in the short-term that's not a "tax increase"). Dems countered with $5 billion in fees and revenue accelerations and no borrowing (reflecting a rejection of the local government proposal).
Both have a sizeable amount ($2 bil-$2.5 bil) of what are called "fund shifts," which includes local transportation dollars that cities are threatening to challenge in court.
And then there are new taxes, about $2 billion from Dems and zilch from the Guv. The Democratic plan includes an extra $1.50 per pack of cigarettes (amounting to $1 billion in the new fiscal year), a 9.9% tax on the gross value of each barrel of oil extracted from the ground in California ($830 million in next year revenue) and a $15 annual vehicle tax to fund state parks (brings in about $200 million, not all goes to parks).
Setting aside the policy issues for a moment, the Democratic plan is particularly interesting for its placement of the tax revenues into the reserve fund... thus making a $3.8 billion reserve, compared to Schwarzenegger's $4.5 billion.
The message: if the governor (or legislative Republicans) want a large reserve, then a tax hike must take place. Schwarzenegger's reserve is filled with money that comes from spending cuts.
"We are not going to create that reserve on the backs of the most vulnerable people in California," Senate President pro Tem Darrell Steinberg said this afternoon.
The Dem plan also includes a few extra gimmicks from the governor's plan -- not unusual gimmicks in budget writing, but gimmicks nonetheless. That includes a 24-hour delay in issuing paychecks for state employees, legislators and staff, and executive staff... a delay from June 30 to July 1. Why? Because the expense then counts towards the 2010-2011 fiscal year, which begins on July 1... and not towards the 2009-2010 fiscal year. The "savings" of such a shift: $1.2 billion.
The Democratic leaders' news conference was slightly upstaged by Schwarzenegger, who spoke to reporters outside his Capitol office an hour earlier. And no surprise, he said he'd veto a deficit package that includes new taxes.
"Even though they have done a good job," said the governor, "I cannot sign a budget that has tax increases in there."
A couple of other points worth noting. First, the package of proposals is a modification of the state budget; the new fiscal year spending plan was actually enacted in February. As such, all proposals that are not a tax increase -- most notably, the spending reductions -- can be passed with a majority vote in each house. Trouble is, that would mean they wouldn't take effect for 90 days... thus delaying aid to the cash-strapped state. For the cuts to kick in immediately, it will take a supermajority vote -- which shifts some of the pressure over to the GOP about matching votes to their rhetoric about cuts, even if the rest of the package isn't to their liking.
The second noteworthy item: Dems are being cautious about whether the entire cuts/taxes proposal is an all-or-nothing package. In other words, if they can only get consensus on cuts, will they send those to Schwarzenegger alone... or will they hold back bills until a full package to their liking has been approved?
"We will send a package to the governor," said Assembly Speaker Karen Bass, when I asked this question today. But then when I asked if that meant it was an all-or-nothing deal... which Bass' answer implied... Steinberg quickly jumped in. "We're not saying that," he said. "We're not saying that."
That makes it seem as though Dems know they, too, stand to lose the PR battle if it seems they're more interested in taxes than in cuts. And the governor could also face a tough choice: would he really veto a package of spending cuts if it was less than $24 billion... thus ensuring the state's finances start to crumble by the end of July?
Act Two is going to be an interesting one.