California Budget Passes With Cuts and, Critics Contend, Smoke and Mirrors By JOHN M. BRODER
LOS ANGELES, Sept. 1 - A bitterly divided California legislature ended a 61-day stalemate early this morning, passing a budget intended to address a $24 billion deficit that is growing deeper by the month.
Democratic leaders in the State Assembly won the needed four votes from Republicans by promising to slash spending while avoiding any significant tax increases.
Gov. Gray Davis praised the budget as a bipartisan compromise that protects vital services and imposes no major new tax burdens. Mr. Davis said today that he would sign the measure, but added that he expected to use his line-item veto power to eliminate what he considered excessive spending.
Critics said the plan relies on illusory savings and accounting gimmickry that would worsen the state's troubles. The budget borrows against anticipated revenue from the national tobacco settlement, temporarily ends a business tax credit and restructures the state's bond debt. These one-time measures do little to eliminate the state's heavy reliance on income taxes and capital gains taxes, and still leave the treasury vulnerable to the vagaries of the stock market and the dot-com economy.
Nonetheless, Governor Davis declared himself largely satisfied with the budget, even though it passed two months after the constitutional deadline for enacting a budget for the fiscal year that began July 1.
"Last night, the legislature took a big step toward solving California's fiscal challenge," Mr. Davis said in a conference call with reporters this afternoon. "But there's no question that we have a long way to go."
The governor noted that the spending plan for 2002-3, at about $98 billion, would be smaller in absolute terms than last year's $100 billion budget, the first such decline since the recession of 1992-93.
He insisted there were no gimmicks in the budget, but said that California still had not devised a way to protect itself from the effects of falling stock markets. He noted that capital gains tax collections reached $17 billion in 2000, the high-water mark for the equity markets. This year, he projects state revenue of $6 billion to $7 billion from taxes on capital gains and the exercising of stock options.
"States that depend on the income tax, as do we, and put a high percentage of their tax base on wealthy taxpayers run the risk that declining stock markets will reduce their revenues substantially," Mr. Davis said.
The legislative deadlock was broken Saturday after four Republican members of the Democratic-controlled Assembly agreed to vote for the budget, giving the bill the 54 votes needed to meet the two-third's majority for enacting a budget.
Democrats got the deal by agreeing to drop an increase in fees for car registration and eliminating any new taxes on cigarettes. An earlier budget approved by the Democratic-controlled Senate would have raised almost $2 billion through those two taxes, but Republicans argued the taxes would place a disproportionate burden on poor and middle-income residents. The tobacco industry lobbied hard against the cigarette tax.
Instead, the Assembly decreed $7 billion in spending cuts that would require the elimination of thousands of state jobs and trim expenditures for schools and universities, prisons and other as-yet-unspecified state functions.
"I would say the agreement traded a real tax increase for a variety of illusory savings," said Jean Ross of the California Budget Project, a nonpartisan research group. "They are raiding every cookie jar in the state and borrowing every way they can."
The deal moved forward late Friday, when Speaker Herbert J. Wesson Jr. and Assemblyman Dave Cox, the Republican leader, worked out a plan to secure the necessary Republican votes by eliminating most tax increases and promising new spending on infrastructure.
Mr. Wesson, who represents parts of central and west Los Angeles, said the deal reined in state spending and "goes a long way toward putting our financial train back on track."
Lawmakers adjourned for the year immediately after passing the budget, some hurling insults at one another and at Governor Davis as they left Sacramento to return to their districts to run for re-election. Very few legislative races are competitive, and Mr. Davis holds a sizeable lead over his Republican opponent, Bill Simon, giving little incentive for compromise, or even, at times, civility.
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