The Downsizing Deficit Deal

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Governor, legislative leaders announce deficit deal Monday night

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[The so-called 'Big Five' announce the deficit deal. Listen to the audio of this announcement above.]

A local government official made a comment Monday afternoon, a few hours before the $25 billion deficit deal was reached, that seems to encapsulate everyone's feelings.

"As this budget hits the street today and people look at it," said San Mateo County Supervisor Rich Gordon, "I think Californians are going to say, 'How did we get in this mess?'"

The answer is a tough one, and so is the way out -- a package of cuts, revisions, and projections that seem to indicate a new era in state and local governance is on the horizon. For better or worse.

Perhaps the most astonishing thing, from a reporter's perspective, is just how many parts of this tough deficit deal were revealed in just the first two hours after it was announced. The standard operating practice around the Capitol is to hold the details tight until just before the Legislature votes, a usually futile attempt to blunt public criticism.

This time, we know a lot (though more will no doubt come out in the next few hours). Most of the following was provided to reporters Monday night by legislative staffers, who spoke on background:

The agreement, if ratified by the Legislature, is $25 billion deal that includes an $875 million reserve, and would leave the state spending about $88 billion out of its general fund in 2009-2010.

It relies on about $15.5 billion in cuts and $11 billion in, well, other stuff (more on that in a moment).

Almost two-thirds of the cuts are in K-12 education, colleges, and universities (though it also includes a one-time supplemental payment to K-12 and community colleges of $11.2 billion). Other sizeable cuts are in corrections ($1.2 billion), state worker salaries ($1.3 billion in the current furloughs) and Medi-Cal services ($1.3 billion). Welfare assistance, health care for low-income kids, and in-home support services would also see cuts.

Also cut: funding for state parks, though nowhere near the level Governor Schwarzenegger proposed in May. Legislative staffers say a few parks would close, and the ones in question will be picked by the administration.

The extra cash in this deficit deal is led by a $4.3 billion transfer of funds from local governments. And while cities and counties had feared one of three scenarios, the deal actually includes all three: a $2 billion borrowing of property taxes under 2004's Proposition 1A (the first ever since its passage), a $1 billion taking of local gas taxes, and another $1.3 billion in property taxes from local redevelopment agencies.

Some of the extra cash has been talked about before, including the "one day delay = a new fiscal year" proposal and advance payments of income taxes by millions of Californians. Those two combined are scored at $2.7 billion; add another $1 billion for the controversial plan to sell off part of state government's workers comp fund.

And a $100 million proposal will generate big news: a second chance for an oil drilling project known as Tranquillon Ridge -- rejected by the state Lands Commission and one environmentalists say is the first new endeavor in state waters in 40 years.

Democrats say the toughest choices for them involved many of the changes to social services -- including changes to the welfare assistance program CalWorks that could force some recipients out of the system for failing to meet work requirements. The deal will also see fingerprinting and background checks for most who receive or work in In Home Supportive Services (IHSS).

There will be much more to come. Legislative leaders admitted that they still needed to fully brief rank-and-file members, and there are some early indications that could be a tough sell. The deal also will be closely scrutinized by Wall Street, as the state still needs to borrow billions of bucks... soon... to make payments and end the issuance of IOUs.

For now, though, the general framework seems to have at least one message: there's more to come. Whether or not some of the solutions pan out, lawmakers say they believe the economy may not have bottomed out... which means the $60 billion or so in deficit solutions crafted so far in 2009 (February and July) aren't the last.

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About John Myers

John Myers is senior editor of KQED's new multimedia California Politics & Government Desk.  He has covered California politics for most of the past two decades -- serving previously as Sacramento bureau chief for KQED News and, most recently, as political editor for KXTV News10 (ABC) in Sacramento. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.

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