When $3 Billion Becomes (Almost) More Important Than $24 Billion

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No one around the state Capitol believes there's an additional $3 billion in easy spending reductions just lollygagging inside the recesses of the budget. Okay, almost no one.

But should the current budget deficit impasse drag on beyond midnight Wednesday, it appears that's how much more money will need to be found to satisfy anyone who believes in solving what we used to call the whole enchilada.

And if the issue has been somewhat obscured by weekend sniping over majority-vote tax increases and media coverage of systemic reform, it ought not to be... because it's likely to be the first real test of how bad things will get.

In a nutshell: the deficit solutions pitched by both Governor Schwarzenegger and Democratic legislators rely on a spending reduction of about $3.3 billion in the 2008-2009 fiscal year that ends on June 30.

That's tomorrow at midnight. Once the new fiscal year begins, those savings are effectively gone.

$3 billion of those savings would come from K-12 and higher education. They are not popular spending cutbacks in education circles, but reflect the larger 'all options are bad' narrative that you've heard in all circles for the past several weeks. The final $300 million or so of current year savings come from a plan to transfer money away from local redevlopment agencies.

Budget staffers say it matters which budget year to which these spending reductions are attributed (2008-09 vs. 2009-10) -- in large part because additional cutbacks in 2009-10 could complicate the already delicate issue of eligibility for federal stimulus dollars.

Immediate savings are important for another reason: they provide some breathing room for the cash-depleted state coffers and might lower or eliminate the need for Controller John Chiang to issue IOUs by week's end.

This issue will again be the focus of legislative debate this afternoon. The state Senate is expected to take up a three bill package that GOP senators and the governor both rejected last week, after Assembly Republicans agreed to provide enough votes in the lower house to approve the stopgap measure. The bills actually are valued at $5 billion in savings, and include additional proposals.

All of this elevates the importance of the fiscal year's passing -- an annual marker in budget debates that this year has seemed less relevant (contrary to some news reports, this summer's debate isn't over a new budget but rather a revised budget... the new budget was enacted in February).

So will lawmakers find an omnibus compromise by Wednesday and be able to take advantage of the $3.3 billion in current-year savings? Will they remain deadlocked and then have to find other places to cut the budget? Or will Schwarzenegger and other Republicans agree to a stopgap plan of action?

If the governor is considering the final scenario... he sure didn't let on to it in comments made today to reporters; in fact, just the opposite.

"I will not sign a budget that is a piecemeal operation," Schwarzenegger said today. "That doesn't do it."

The governor has put a few addtional budget proposals on the table since last week, but those don't seem to have bridged the gap with Democrats. And so the clock keeps ticking... and all sides wonder where lawmakers would find another $3 billion if the clock runs out on the solutions on the table.

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About John Myers

John Myers is Sacramento Bureau Chief for KQED Public Radio and "The California Report," heard daily on 23 public radio stations across the Golden State.

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