California lawmaker urges budget talks boycott: report

SAN FRANCISCO (Reuters) - A California lawmaker wants fellow Democrats to boycott budget talks with Republican Governor Arnold Schwarzenegger even though the state has no spending plan on the eve of its new fiscal year, a newspaper reported on Thursday.

A confidential memo by Assembly Speaker John Perez obtained by the Los Angeles Times and posted on its Web site says it is critical Democrats "hold firm and not engage in any negotiation until the governor shows signs of reciprocation."

The Speaker also said Democrats should refuse budget talks until Schwarzenegger drops plans in the budget proposal he unveiled in May calling for dramatic spending cuts, which would strike hard at health and human services.

Perez also said that "to date, there has been no productive engagement on budget talks with the governor" and Republican lawmakers, according to the Los Angeles Times.

Schwarzenegger and lawmakers must close a budget gap of more than $19 billion to balance the state's books, a deficit opened by plummeting revenue caused by recession, the housing slump, financial market turmoil and high unemployment.

California's new fiscal year is one week away.

The state's jobless rate is above 12 percent and experts see it in the double-digits for some time.

Perez has put forth a rival budget plan that relies on borrowing from state funds and calls for an oil severance tax to help narrow the shortfall.

The legality of the borrowing component of Perez's plan has been questioned by Attorney General Jerry Brown, the Democratic nominee to succeed Schwarzenegger. That spurred State Treasurer Bill Lockyer, also a Democrat, to question it.

Perez's memo highlights the partisan tensions in California's legislature, accusing Schwarzenegger of being "in lock step with the Republic Right Wing."

The legislature's Republican minority has enough votes to prevent Democrats from passing budgets on their own. Like Schwarzenegger, it has ruled out tax increases as a solution to the state government's fiscal woes.

The memo by Perez suggests California's notoriously bitter budget politics will go from ugly to uglier and may stretch into the fall, said Bob Stern, president Center for Governmental Studies in Los Angeles.

"It's going to be a long, hot summer," said Stern.

Schwarzenegger spokesman Aaron McLear said boycotting budget talks could push the state's government into the kind of cash crunch it suffered in 2009.

California's finances were so strained last year during a budget stalemate that it was forced to issue IOUs to hold money in reserve for top-priority payments, including payments to investors holding the state's bonds.

"The governor believes there's no reason Republicans and Democrats can't sit down, negotiate and pass a budget on time," McLear said.

Aides to Perez could not immediately be reached for comment.

Separately, Schwarzenegger is tangling with State Controller John Chiang, a Democrat, over his plan to pay state workers minimum wage.

The governor would cut their pay if the budget impasse persists. Chiang opposes that plan and will pay full wages, spokesman Jacob Roper said.

"The controller's concern here is that with the state's current payroll system, minimum wage checks cannot be cut and full pay cannot be returned in a way that complies with federal law," Roper said.

(Editing by Andrew Hay)