What is Really Going On in the California Budget Negotiations?

Couple all of this with:

• The mandated payments under various ballot propositions and laws that leave no room for discretion

• A no new taxes of any kind or shape, including plugging loopholes and other revenue enhancements from the Republicans in the legislature

• The programs that Democrats and Republicans both want and the ones that one party or the other wants to fund,. and the requirement that two-thirds in both houses vote for the budget.

And as Villines said: "It's not going to happen. Big surprise." The time frame is too short to expect the details of a budget to be ironed out, especially in difficult times. The budget conference committee has resolved most of the issues, but there are 4 or 5 large ones that remain, and they have temporarily deferred to the Big Four--the majority and minority leaders of the two houses who are meeting to see if a deal can be put together that will get the votes to pass.

What I heard in Villines remarks is that the state's economy and hence future revenues is not in great shape in part because of all the subprime loans that are ballooning and that many cannot pay. His main talking point--according to his math--the conference committee has added $1.2 billion that has to come out. Most shockingly in my opinion, he asserts there are no policy issues here and that it's only a question of spending. He' says it's up to the Democrats to make the cuts and he washes his hands of them--it's not his job--although he says there are "tough choices" here.

According to Laird, Villines figures are off and the difference is that the Democrats have included $827 million of transit funding that the LAO, Legislative Counsel, and others have advised cannot legally be cut, and making the choice to fund those on Social Security and kids rather than paying off $600 million early to Wall Street.

The numbers shift around, but money is fungible. There's a gap that is described by Villines as large and by Laird as small. Both of them deny that decisions are being made based on how the public views the Legislature and how this may affect a term limits ballot proposition, even though Villines brought up both of these in his initial comments. They both say decisions are being made on the basis of what they believe to be the best for California and acknowledge their differences. By the way, the whole press club lunch, where Villines was the headliner and Laird sat in the back ready to respond, was most civil, polite, and respectful.

They both say no other deals are in the works--outside the budget--on other matters. In fact, it is illegal to trade votes on different bills and the budget is considered a bill. I still wouldn't be surprised if there were not some other matters dragged into the budget battle.

So here is Villines in his own words. Some repetition is left in as the context is important:

"In terms of the budget, it's not going to happen by tomorrow, big surprise. But I think we're all working together to get something done in a reasonable time. There's no reason for us not to be adults, to get into the room to talk about our differences. But they're clear.

We went to budget conference committee with one number and we've come out about 1.4 billion more in spending. That spending has to come back. We cannot go forward this year with a budget that isn't balancing the budget. We've got to do that, we can't spend more than we're bringing in.

And this year is a watershed. If we don't step up and make really difficult choices this year nobody will want to be here next year because it will be a disaster.

That housing bubble that we all thought would hit this year, it did hit this year. Because banks are working with people, people are still selling homes, even if it's 20 to 25% less than it was a year ago. But next year, those folks, they can't work with the bank. Those foreclosures that do happen--those subprime loans that hammer people, and they are out, that will affect us greatly next year. All we have to look at is the $750 million drop in the last month that we just saw, and that should show us, I think, the pattern where we are moving towards.

We have to bring back everything that we just put into conference committee--has to come back--we can't spend that money. Or else there will have to be offsets. Otherwise, Californians will look at us and say "Why should we give you a chance to do anything else? And I think they would be right in that.

I'm encouraged that we have been working on the budget as legislative leaders. We've been talking with the Governor, off and on. Our staffs are working hard, and I think you will see us get to the spot that is the right thing for California. Most of us want on-time budgets. I believe people want us to have that.

But people want us to do things right.

I think John Laird and Roger Niello [both on conference committee] are great gentlemen who are very smart, who can get in the room and start to pull things together.

We of the four legislative leaders, we will be able to work with them and find out where the big pieces are and there will be some tough choices, but they're not going to be any tougher tomorrow, or next week, or on June 30th than they will be on July 15th, August 15th or September 15th.

In answer to a question as to how far apart legislators really are:

I don't think that we are close. To say that we are close would not be a true characterization. I think because we have a spirit of cooperation and are working together, sometimes we think that things are going better than they are. But it isn't going personally bad.

As far as numbers, when you said numbers, I think the Governor was about a $1.5 billion over. I believe the conference committee just added about $1.2 billion. I think that $ 1.2 billion has to come back. We've prepaid the billion dollars in debt out of the June 30 deadline. That was good. There's $600 million dollars that's still left, and that should go towards debt and not new programs and new spending.

You can't go into conference and do $1.2 billion more and then say, here's the [inaudible] where do you want to make cuts? My attitude is that I believe that's their job to go back and say if these priorities for spending are important to you, then where are your offsets and where are your cuts. That's not my job. I didn't increase that $1.2 billion.

John Myers, President of the club asked:

"Can you talk about in that $1.2billion? Are there particular areas--policy issues--most precisely that you all disagree with? Some of it was Calworks issues; some of it was other things. From a policy perspective….

For me it's not a policy issue, it's just a spending issue at this point. If there's a $1.2 billion that went in, then $1.2 billion has got to come out somewhere. That's not our job to come up with, I think that's our colleagues job on the other side to say, if you're spending more than we are bringing in, where you want to make some changes. For me, I'm willing to discuss in any way, shape, or fashion where Mr. Laird or the Speaker wishes to discuss that, but we can't spend more than we make. Period. So that's their job to come back. I'm agnostic to where we to do it at.

Laird in his own words:

When you get to specifics, I think it points to a different direction. The Legislative Counsel has said that $827 million that the Governor wants to take away from public transit isn't legally achievable. And the Governor wants to pay $600 million to Wall Street in addition to the $2.5 billion we are already paying, that we don't have to do.

And if we don't actually cut increases to people on Social Security and don't hurt kids as opposed to paying Wall Street, we're in a similar ballpark.

He [Villines] was very concerned about health care being legally achievable. The Governor's transit cut is in exactly the same boat.

Clarifying the numbers on repayment to Wall Street:

$2.5 billion is a done deal; he's going an additional $600 million. And he's choosing not to give increases to people on Social Security and to take away benefits to kids. …He's choosing Wall Street over California's kids and seniors. And that's where the difference is, between his unachievable rip off of transit money and in the difference between paying Wall Street at the expense of kids and seniors.

In response to a question about linkage of the budget to term limits:

I don't think so because we are not as far apart as some people might think. And I don't think anybody is going to sacrifice what they think the right thing is for California for some other reason.

On the numbers again:

We have a remarkably small number of issues. We have four or five large issues that are left and when you look at bonds or Prop 98, there almost preordained and it's not like you can change them. And the irony about what he said about equalization is that the Governor overestimated school revenues by $366 million and as a result, we are barely going to make the cost of living increases in growth payment to schools. And if we go in, and try to fund equalization fully, it's at the expense of growth and COLA to school districts. It's robbing Peter to pay Paul. And the only way you can get around that is if you over appropriate Proposition 98 and that are exactly what Mr. Villines said he didn't want to do--it's overspend.

When asked what's in the $1.2 billion, he disputes the figure and has his own context:

$1.2 billion is his [Villines] number. It really gets down to the $600 payment to Wall Street over and above the $2.5 billion we are already paying and the $827 million of transit money that probably the Governor can't legally take away from public transit. Those are really two big differences.

The conference committee hasn't made a final decision on transit because we're deferring to the Big Four process for the short term. We're really looking to see if there can be a cooperative agreement, and then that becomes the conference committee budget is the agreement among the leaders. But if a week or ten days, there's not an agreement or significant progress toward it, I'm sure that we'll come up with a conference committee budget that we can vote on or have ready to have a vote by June 30th.