Democrats pushing through California budget package

SACRAMENTO Wed Jun 15, 2011 7:31pm EDT

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SACRAMENTO (Reuters) - California legislators on Wednesday pushed through most of a budget package that would rely on an Internet sales tax, spending cuts and fee hikes, and a host of rosy forecasts to close a $10 billion shortfall.

By late afternoon the state Senate had passed the entire package and the Assembly was near the end.

The package, called a "mockery" by one investor, did not surprise California debt holders, but it did not unnerve them, either, since their payments are guaranteed by the state constitution.

Republicans, frozen out of the budget process on Wednesday after a breakdown in talks, groused that Democrats were rushing through the package to avoid forfeiting pay if a midnight deadline arrived with no budget.

Governor Jerry Brown, who had promised to avoid "smoke and mirrors" in the budget, has indicated he is open to some expediency on a spending plan. A spokesman declined to comment before reviewing the spending plan.

Democrats control the state Assembly and Senate and can pass a budget that does not raise taxes without Republican support.

Democrats, aiming to the midnight deadline, stressed in speeches on the floors of the Senate and Assembly that they had backed some $11 billion in spending cuts and other measures in March, expecting that doing so would impress Republicans to compromise and support Brown's plan for tax extensions.

With Republicans balking at the extensions, Democrats said they had to press ahead with a budget plan of their own.

"We have no choice but to act," after Republicans stymied Brown's plan for tax extensions, said Assembly Speaker John Perez, a Democrat.

California voters last year changed budget rules to allow lawmakers to approve a state budget by a simple majority -- which Democrats have -- so long as taxes are not raised.

That set the grounds for the biggest municipal debt issuer, whose financial heft is enough to influence the entire U.S. economy, to work a near-miracle in state history -- to have an on-time budget.

The Democrat's budget plan involves requiring online retailers such as Amazon.com to collect sales tax to provide a $200 million boost for the state's revenue, and it would allow the local sales tax to rise by 0.25 percent, which requires only a majority vote.

Democrats also proposed more spending cuts along with billions of dollars in delayed payments for education and rosy revenue assumptions, including revenue from the sale of state buildings opposed by Brown.

Some analyst said the package reminded them of previous state budgets loaded with creative accounting.

"What a mockery," said Marilyn Cohen, president of Envision Capital Management in Los Angeles. "The legislature doesn't change its spots."

But investors in the $2.9 trillion U.S. municipal debt were likely expecting as much so the budget package should not be much of an issue for the state's bondholders, Cohen said.

Brown wants temporary tax extensions and has said he would not sign a budget with one-time moves that state leaders have routinely employed over the past decade to balance the state's books.

But this week he suggested he may be open to an expedient budget.

(Editing by Peter Henderson, Dan Grebler, Diane Craft and Lisa Shumaker)

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