This may sound ludicrous to those outside the state Capitol, but there's a sense around here that lawmakers have finally gotten serious about agreeing to a new budget. Yep, that's only about 12 weeks after the fiscal year began.
The seemingly new focus comes as the 2010 budget impasse closes in on the last record of frustration -- the latest California has ever enacted a state spending plan, which happened on September 23, 2008.
So here's a look at what you might be able to expect.
Let's start by pointing out that there's a lot of negotiating left to do, with a little less of it happening today than planned; a spokesman for Governor Arnold Schwarzenegger says the Guv is under the weather today and will not be convening a 'Big 5' meeting with legislative leaders. So we'll see where things stand come tomorrow.
That being said, in conversations with a number of budget watchers -- none who can confirm any particular possible deal point, but all being familiar with where things seem to stand -- what emerges is a relatively small list of issues to watch over the coming days as crucial to ending the impasse.
Public School Funding: Proposition 98
As I've reported several times, the voter-approved school funding guarantee is such a complicated mix of formulas that only a handful of people really understand how they work. And yet it guarantees that K-12 schools and community colleges, combined, get somewhere between 40% and half of all general fund spending. That means Prop 98 is always a big player in budget talks, and has been for much of 2010.
Several sources confirm that negotiations last week included serious discussion of what the school funding level will be this year, as well as what Prop 98 allows. Let's take the last issue first: what does Prop 98 allow? In the last few years, there's been a sense that the funding formulas have been stretched far beyond what the constitutional amendment is supposed to mean -- a stretching that's been the result of political deals between lawmakers and Prop 98's powerful backers in the education community.
That's why the nonpartisan Legislative Analyst's Office has been advocating that, rather than keep finding ways to make a budget deal work under Prop 98, it's better to legally suspend the funding guarantee -- allowed by law with a supermajority legislative vote, but done only once in the measure's 22 year life. But suspension creates a payback of funds to schools that, while predictable for budget writers, isn't usually as generous as payback provisions under the rules of Prop 98 (either the actual rules or, in some cases, budget deals written into law).
Which brings us back to how much money the state should -- or can afford -- to spend on schools this year. Schwarzenegger's May proposal called for $48.4 billion in Prop 98 funding, which he claimed could be down without suspending the constitutional guarantee. Democrats countered this summer at about $52 billion, and suggested the Prop 98 guarantee should be formally suspended.
Keep an eye on where that total number lands; after all, while everyone agrees that spending reductions for schools should be avoided, the biggest bang for the buck of deficit solutions came come from trimming school funding. Several budget watchers tell me it'll likely come down to what total dollar amount the politically powerful education community will accept, as well as what they'll insist on when it comes to a repayment plan.
Revenues: What Kind of Extra Cash Is Politically Acceptable?
Okay, maybe we should avoid using the term 'tax increase' here, though purists will no doubt argue that any additional revenue is a de facto tax increase for someone out there. But not all additional revenues are created equal, at least when it comes to politics. Democrats have been forceful all year in demanding that some kind of revenue increase be included, rather than accepting the total dollar value of cuts called for by the governor; Republicans and Schwarzenegger have been just as adamant that they should not.
There's not much being spoken, even on background, about how the revenue fight will play out... so not much to point you to watch. But keep in mind that, according to the last Democratic budget plan released to the public in August, there are basically three pots of revenue: the complicated income/sales tax swap, the revocation of business tax breaks, and various other options (from the controversial oil severance tax to better tax enforcement).
The tax swap, now trimmed down to about $1 billion in 'new' money, remain a tough sell with both the GOP and advocates for the working poor. The "various" category, minus the oil tax, may be easier to pull off but don't get you a lot of help. Which leaves the business tax breaks, which are worth about $2 billion this fiscal year and still off the table for Republicans.
Those are all toughies, but keep your eye on the tax swap and the business tax breaks... if Democrats give up both of those, in all forms, Republicans will have won a major victory.
Pension Reform: Bargaining vs. Legislation
If any issue bears watching, for both fiscal year and political legacy reasons, it's the fight over changes to public employee pensions. And here the rhetoric has been pretty intense -- especially on the part of Governor Schwarzenegger. The governor has time and again demanded legislative repeal of the 1999 pension law that he says overly puffed up the retirement packages of some state employees. In fact, he's flat out said that he won't sign a budget without repeal of thaw law, SB 400. Democratic legislative leaders, as recently as last week, again reiterated that they think Schwarzenegger needs to get the concessions he wants at the bargaining table with unions -- not through the Legislature. And the biggest bloc of state workers still at the table are those represented by SEIU Local 1000. However, the table hasn't been visited for a while by SEIU; a union representative says the last formal negotiations were in late August, while a state personnel spokesperson says talks have been "in fits and starts" as of late.
While there's a savings being targeted through labor union pensions for the current fiscal year, this is really a fight about the future -- a future that includes Schwarzenegger's legacy. Whether Democrats, especially those in the generally more liberal-leaning Assembly, would agree to repeal that 11 year old law remains to be seen. But one way or another, someone's going to have to blink on this... and subsequently find a way to declare victory after it's all over.
And if that's not enough...
The above list doesn't even include budget reform (governor wants to again ask voters for a larger 'rainy day' reserve fund), the ever-present last minute side deals on issues that seem significantly less-than-on-point to the budget, the final estimate for help from the feds (my bet: everyone will aim high), and more.
But here's something that feels pretty safe to say: if any of the major points listed above doesn't start showing signs of progress soon, be prepared for budget talks slouching into October... meaning more than $6 billion in unpaid invoices by the state, and less than a month before a major statewide election.