- The Washington Times - Tuesday, July 29, 2003

SACRAMENTO, Calif. (AP) — The state Assembly approved a compromise budget yesterday that covers a record deficit by slashing spending and raising fees, but relies on borrowing that could leave the state with a financial crisis next summer.

The proposal approved in the Assembly’s longest session now goes to Democratic Gov. Gray Davis, who has indicated he will sign it. Analysts say Mr. Davis, who faces a historic recall election in October, could get a boost in the polls with a budget plan in place.

The budget proposal avoids increases in sales and income taxes, but counts on a $4 billion annual car-tax rise that state officials triggered earlier this year and the elimination of a tax break for manufacturers.

After more than 27 hours of negotiations, the near $100 billion budget bill passed 56-22, getting the required two-thirds majority.

The proposal largely protects education funding for the next year. Public health and human service programs also are expected to be maintained at levels of last year.

The plan uses a complex tax swap that allows the state to borrow nearly $11 billion to help bridge its revenue shortfall.

But because lawmakers could not agree on imposing deeper cuts or raising more revenue through taxes, they delayed for at least a year a decision on how to deal with part of the deficit that could reach $8 billion by next summer.

Because spending has far outpaced tax collections the past two years amid a slumping economy, officials forecast earlier this year that California taxpayers would face a $38.2 billion deficit by next July if aggressive steps were not taken.

Passage of the budget should ease Wall Street investor concerns, but it’s not likely to change the state’s low credit rating. Last week Standard and Poor’s, one of the country’s most influential rating agencies, downgraded California’s debt to a notch above junk-bond status.

The budget deal came only a few days after the effort to recall Mr. Davis qualified for a special election this fall. Mr. Davis is expected to sign the budget tomorrow and begin focusing his energy on saving his job.

The monthlong deadlock was caused by disagreement between Democrats and Republicans over tax increases and spending cuts.

Democrats, who hold big majorities in both chambers but need Republican help to muster budget-approving two-thirds votes, wanted a half-cent sales tax to help close the budget gap. Republicans said the gap could be closed using existing revenue and deep cuts.

The Senate approved the compromise Sunday night and sent it to the Assembly, which took up the matter at noon Monday.

Negotiations continued through the night and Speaker Herb Wesson said he would hold members on the floor as long as necessary, breaking a 26-hour continuous session record set in 1963 during an education dispute.

“Yesterday, I decided it was important for us to work around the clock to get this job done,” said Mr. Wesson, reminding his colleagues that he used to coach football. “Sometimes in the fourth quarter, people get tired. Sometimes when people get tired they need to press forward, and that’s what we’ve done.”

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