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Prognosis for Budget Deal Still Uncertain

The Legislative Conference Committee voted on a budget last Thursday that closely parallels Governor Brown’s original plan: $12.5 billion in cuts, a $1.1 billion reserve, and tax extension / realignment proposal to generate $12 billion in revenue. You can find a summary of the Committee’s agreed-upon healthcare cuts in this previous blog post.

The legislature appears to have learned from 2009 when five tax proposals on the ballot (1A-1E) all failed. The plan this year is to have all of the tax extensions contained in one ballot measure, making it simpler to explain to and elicit the support of voters.

All of this was looking good late last week, as both unions and the CA Chamber of Commerce came out in support of the plan — a rarity in Sacramento. The Chamber said it would defend any members that made the tough decision to vote for this package (that includes the $12 billion in revenue) and help support their reelection bids.

In order to reach the required 2/3 majority in each house to pass the budget and qualify tax measures for the ballot, and assuming all Democratic members vote in favor of the plan (which by all indications is the case), two Republicans in the Senate and two Republicans in the Assembly will have to join the Democratic majority.

This Week

Despite the air of bipartisanship in Sacramento last week, on Monday, five moderate Republicans, those most likely to support the budget compromise, rescinded their stated support and made new significant demands to be included in the budget deal, namely scaled-back pensions for public workers and further restrictions on state spending.

Yesterday, however, the five Republicans resumed negotiations, saying they met with Brown and Democratic leaders “out of a mutual desire to keep the conversation moving forward… But we are realistic. Getting to a constructive agreement involves difficult compromise”

What’s On the Table

The five Republicans are calling for a hard, long-term budget spending cap. Democrats seem willing to entertain a temporary spending limit, one that lasts as long as the five-year tax extensions, according to Senate President Pro Tem Darrell Steinberg.

Democrats seem far less willing to agree to the other of the Republican Five’s policies: an overhaul of the state pension system into “hybrid model” that includes a reduced pension and a 401(k)-style component, similar to what federal employees have. Democrats think this is too drastic, and instead prefer targeted changes that address the worst pension abuses, for instance, preventing employees from “spiking” their retirement payouts at the end of their careers.

Deadline Looming

Earlier this week, it appeared as if Governor Brown would will miss his 60 day deadline of Thursday, and therefore be unable to put the measures on the June ballot. Now, with the Dems and Reps back at the negotiating table, there is hope that a deal can be reached.

If not, the window to qualify the tax measures for the June ballot will close. The tax pieces could still be included in the budget, but both houses of the legislature would have to vote with a 2/3 majority to extend the taxes themselves — highly unlikely if they’re even balking at putting them before the public. In that case, the legislature will have to come up with an additional $12 billion in cuts beyond the $12.5 billion to which they’ve already agreed.

Stay tuned… we should know a lot more in the next 24 – 36 hours.

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