Analysis: California budget plan takes hits from both parties

SAN FRANCISCO Fri May 27, 2011 3:33pm EDT

People protest against education budget cuts in Los Angeles, California May 13, 2011. REUTERS/Lucy Nicholson

People protest against education budget cuts in Los Angeles, California May 13, 2011.

Credit: Reuters/Lucy Nicholson

SAN FRANCISCO (Reuters) - A second front has opened in California's budget war as some of Governor Jerry Brown's fellow Democrats rebel against parts of his plan to cut spending while Republicans stay firmly opposed to tax hikes.

Brown's election in November and ongoing control of the legislature by Democrats held out the possibility of a break with a past of bitter partisan disputes and late spending plans that made the most populous U.S. state look ungovernable.

But Brown must now contend with both defiant Democrats and resistant Republicans as the legislature's mid-June deadline for agreeing on a budget nears. That raises the possibility the state's leaders may find themselves once again holding budget talks after the state's new fiscal year begins on July 1.

California's budgets have been signed into law before the start of the new fiscal year only five times over the past two decades.

"The chasm in California's politics goes both ways," said Larry Gerston, a political scientist at San Jose State University.

The politics of closing the rift are being closely watched in Washington, where the battered finances of state and local governments have become a major issue.

Investors in the $2.9 trillion U.S. municipal bond market also have a keen interest in how California's leaders go about balancing its books, and how long it may take, because the state was the market's biggest debt issuer last year.

ANGST IN THE ASSEMBLY

California's finances are improving due to an estimated $6.6 billion boost in revenue that Brown has said he would use to bolster school spending and help reduce the remaining budget gap to some $10 billion from about $15 billion.

Brown would also fill the gap with revenue from extending tax increases along with spending cuts beyond $11 billion in cuts and other measures already approved by lawmakers.

Brown's plan places him between anti-tax Republicans and Democrats chafing at the prospect of deeper spending cuts, which would build on several rounds of cuts in recent years to help keep the state's books in balance.

The mini-rebellion by Democrats is one of a few signs that Brown may not be able to keep his own party in line.

"A lot of Democrats have said 'Enough is enough,'" said Steve Maviglio, a public affairs consultant who was a top aide to two former Assembly speakers, both Democrats.

Democrats in an Assembly subcommittee on Wednesday pushed back on Brown by reversing some of his proposed cuts.

"Restoring funding to these important programs for California families will protect children and help working parents during these tough economic times," Speaker John Perez said in a statement after the subcommittee's vote.

'A REAL PROBLEM'

Brown was not pleased. "Given the state's $10 billion deficit, this is a real problem," he said in a statement provided by a spokesman.

It's not the first time Perez has been at odds with Brown's budget plan, which calls for lawmakers to put to a ballot measure the proposed plan to extend tax increases. Perez has signaled the legislature should approve these extensions on its own, which would be at odds with Brown's vow in his gubernatorial campaign to leave taxes ultimately to voters.

Brown may also need to contend with a different tax campaign in the state Senate. Trying to outflank Republican opposition to statewide taxes, the Senate's top Democrat is pushing a bill that would grant local governments new authority to raise a variety of taxes.

Democrats have enough votes to pass a budget on their own with a simple majority vote, but they need Republican votes to extend tax increases because revenue measures require two-thirds backing from lawmakers.

Brown needs only a few Republicans to support his plan for a statewide vote on extending the tax increases. Some have hinted they would back it in exchange for paring the state's pension plans or a cap on state spending. But as a first step toward a bargain paving the way to a budget agreement Republicans need to know Brown can rally Democrats behind spending cuts.

Brown can't take that for granted, said Gerston.

"At the end of the day, for the Democrats to have any hope of getting anything done, they are going to have to congeal," Gerston added.

(Reporting by Jim Christie; Editing by Eric Walsh)

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