Brown Focuses on Pursuit of Four Republican Votes as Taxes Question Hangs

California Governor Jerry Brown said he’ll work through the weekend to coax at least four Republican lawmakers to break ranks and put $9.3 billion in tax extensions to a referendum, to stave off further sweeping cuts.

Brown persuaded the Democratic majorities in the Senate and Assembly to slash $12.5 billion from the budget yesterday, overcoming Republicans who united against the key spending bills.

The 72-year-old Democrat campaigned on a pledge to restore fiscal stability to the nation’s most populous and most indebted state, even as it faces a $26.6 billion deficit through June 2012. He needs four Republican votes to authorize a special election on the taxes. Without that revenue, Brown has said, another $10 billion will have to be chopped, much of it from schools and public safety.

“The Republicans know we are in a state of fiscal crisis,” Brown said after the bills passed, over Republican opposition. “I’m hoping Californians will rally around our flag and make the tough decisions that are needed and exercise the discipline necessary to stabilize our very shaky finances.”

As they headed into the California Republican Party’s annual convention this weekend, Brown’s opponents showed few signs of budging. Democrats said potentially sympathetic Republican lawmakers fear defying their leaders before the conclave.

“Convention or no convention, our principles are the same with regard to taxes,” said Connie Conway, the leader of the Assembly Republican caucus. “We’re not going along with it.”

Conservative Caucus

A conservative caucus at the convention in Sacramento is pushing to publicly censure any lawmaker who votes to put the tax measure on the ballot.

The Assembly and Senate could take up the tax plan as early as March 21. Brown has been meeting privately with Republicans for weeks in an effort to strike a deal before time runs out for setting the ballot.

The cuts completed yesterday are part of a budget package that included limiting Medicaid recipients to seven doctor’s visits a year without a physician’s certification, ending sponsorship of day care and pre-school for 60,000 lower-income children, reducing subsidies for community college and shifting about 28,000 prison inmates to county jails over the next year.

Remaining to be resolved are the tax question, a proposal to abolish redevelopment agencies and enterprise zones, a plan to require California businesses to switch to a single-sales factor income-tax plan.

Redevelopment Agencies

A key component of Brown’s budget plan, to shut down 400 local redevelopment agencies and enterprise zones, fell one vote short of passing the Assembly and remains in doubt. Brown wants to divert their property-tax revenue to schools and local governments.

Brown would use $2.2 billion of redevelopment money to pay debt and devote the rest, almost $3 billion freed up by shutting the agencies, to education, health care and the courts. The state ordinarily sends $1.7 billion to schools to make up for property taxes given to development agencies.

Republicans have said voters should be given the choice to reduce pensions for government workers and to put a cap on spending with a formula tied to inflation and population changes. Brown and Democrats have so far turned a deaf ear.

The fight over the tax measure comes after a poll was released March 16 showing that a majority of California voters support Brown’s plan. The approach is backed by 52 percent of voters, according to a statewide survey by the University of California, Berkeley, and The Field Poll. His proposal to extend the taxes won support from 58 percent.

Billions in Deficits

With an economy bigger than Russia’s, California has fought through a combined $100 billion of shortfalls in the past three years. U.S. governors face deficits totaling as much as $113 billion in the coming fiscal year, according to the Washington- based Center on Budget & Policy Priorities.

If the ballot measure is approved, voters would be asked to retain a 0.25 percentage-point increase in personal income-tax rates; a 1 percentage-point boost in the retail-sales tax rate, to 8.25 percent; an increase in the rate for auto-registration fees of 0.5 percentage point, to 1.15 percent of a vehicle’s value; and a reduction of the state’s child tax credit to $99 from $309.

Brown has said he wants to know the outcome of that vote before June 15, the constitutional deadline for the Legislature to send him a budget. Last year’s financial plan was passed a record 100 days into the fiscal year, which begins July 1.

California shares with Illinois the lowest credit rating of any state from Moody’s Investors Service. The A1 grade is Moody’s fifth-highest. Standard & Poor’s rates California A-, its fourth-lowest level for investment-quality securities.

The extra yield buyers want a California bond maturing in March 2040 compared with an average for top-rated debt declined 9 basis points yesterday to 0.83 percent, according to a Bloomberg Valuation index. That’s down 121 basis points since Jan. 20. A basis point is 0.01 percentage point.

To contact the reporters on this story: Michael Marois in Sacramento at mmarois@bloomberg.net; James Nash in Sacramento at jnash24@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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