California legislators prepare for budget vote

Reuters News
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Posted: Jun 28, 2011 6:34 PM
California legislators prepare for budget vote

SACRAMENTO, California (Reuters) - California lawmakers prepared on Tuesday to approve a state budget that closes a nearly $10 billion shortfall a day after Governor Jerry Brown and top Democrats unveiled the package.

Democrats, eager to have a budget in place by the start of the new fiscal year on Friday, will be able to approve the entire package because they have majorities in both the state Senate and Assembly.

Brown and fellow Democrats closed the final $10 billion hole with a combination of rosy assumptions for $4 billion in additional revenue, additional cuts to state universities and welfare programs, and deferring payments to schools.

A pickup in the state economy, which still suffers from double-digit employment and a housing market bloated with foreclosures, is replenishing state coffers faster than hoped.

The plan is sound enough to let the state issue $5 billion in debt to cover normal summer cash shortages, the state treasurer's office said.

Votes on the plan are expected to begin at about 4 pm PDT.

But Marilyn Cohen, president of Envision Capital Management in Los Angeles, said the revenue expectation was risky and reminded her of the budget tricks Brown said he would avoid.

"I like to call it the Abracadabra budget," Cohen said. "Abracadabra and the $4 billion magically materializes."

A budget approved and enacted before the start of new fiscal years is a rarity in California, the most populous U.S. state and the biggest issuer in the $2.9 trillion U.S. municipal bond market.

California's budget politics are closely watched in the market, which some analysts say is primed for a wave of state and local government defaults.

Brown, who vetoed a spending plan from Democrats earlier in the month, abandoned his own proposal that the legislature set a referendum on tax extensions.

A measure to put tax extensions on the ballot would have required a handful of Republican votes to reach the two-thirds vote requirement in the legislature for tax issues.

Republicans had blocked tax extensions, prompting Brown to cease trying to win their votes and to partner with Democrats over the weekend to craft the budget package.

The package includes provisions of the Democratic budget he vetoed earlier this month, additional spending cuts, and relies on $4 billion in better-than-expected revenue to help plug the state budget gap. Education will face more cuts if the revenue does not come through.

(Reporting by Jim Christie in Sacramento, editing by Peter Henderson)