June 14 (Bloomberg) -- Democrats who control California’s Legislature said they’ll stand their ground against some of the welfare cuts Governor Jerry Brown wants to close a $15.7 billion deficit as a deadline to pass a budget looms just days away.
The members of Brown’s own party propose an alternative to his budget that rejects about $1 billion of cuts in welfare, childcare subsidies, in-home health services and college grants for the poor. They’d pay for it by reducing reserves, shifting funds and making accounting changes.
“We are not looking for a fight with the governor,” Senate President Darrell Steinberg, a Democrat from Sacramento, told reporters at a Statehouse briefing yesterday. “But we will not shy from a fight if it is necessary to stand for the middle class, the poor and the struggling.”
Lawmakers in the most populous U.S. state must pass a budget no later than June 15 or lose their pay for each day they’re late. Democrats said they intend to vote before the deadline even if no deal with Brown is reached. That would allow them to keep their pay, notwithstanding a Brown veto of their plan.
The 74-year-old governor has been meeting in private with top Democrats to negotiate a compromise spending plan for the world’s ninth-biggest economy. In a June 12 statement, Brown said the Democrats’ plan would only worsen the spending gap in future years.
Democratic leaders sought to play down the differences, saying they and the governor agree on 99 percent of the budget.
“The differences between the governor’s proposal and our proposal are bridgeable,” Assembly Speaker John Perez, a Democrat from Los Angeles, told reporters yesterday. “We’re not only on the same page as the governor -- we’re in the same paragraph.”
Perez and other legislative leaders sued Controller John Chiang after he asserted that last year’s budget, while adopted by the deadline, wasn’t balanced and docked their pay. A court later said he didn’t have the authority to impose his judgment on when a budget is balanced.
An impasse over welfare might imperil the governor’s chances of persuading voters in November to temporarily raise income and sales taxes to prevent $5 billion in cuts to schools.
The ballot measure would boost income taxes on top earners to the most in the nation, and raise sales levies that are now the highest of any state. Without the revenue, Brown threatens to cut $6 billion, most of it from education.
The governor also wants to slice $1.2 billion from health-care for the poor, $1.1 billion from welfare and in-home help for the elderly and disabled, and $500 million from courts. He’s counting on lowering personnel costs by 5 percent, mainly by trimming workers’ hours.
The Democrats’ plan builds a $544 million rainy day reserve into the budget, about half of what Brown proposed. They would reduce school funding by $330 million by using a different method of calculating how much schools are due and take $250 million more than Brown from tax money that formerly flowed to the state’s now-abolished redevelopment agencies.
The Democrats reject half of the $880 million in cuts Brown proposed to the welfare-to-work program known as CalWorks. The governor would require those receiving welfare to find work within two years instead of four, or forgo the aid. He’d also reduce by almost 30 percent the amount of money provided to families with children who are no longer eligible for welfare payments because of the time limit.
Democrats want to exempt families with young children from some of the welfare-to-work rules.
‘Back to Work’
“We need additional structural reforms to cut spending on an ongoing basis, including welfare reform that’s built on President Clinton’s framework and focused on getting people back to work,” Brown said yesterday in a statement, referring to welfare changes under former President Bill Clinton. “Balancing the budget is critical to protecting education for the long term. We’re not there yet.”
The tug-of-war between Brown and his fellow Democrats over welfare cuts verses drawing down reserves isn’t of much concern to investors, said Eric Friedland, head of municipal credit research at Schroder Investment Management North America, which oversees about $2 billion in muni securities.
Friedland said the current budget cycle is notable for its lack of cliffhanger drama, which should restore investor confidence in a state that had to issue $2.6 billion in IOUs for cash flow in 2010.
“The state of California is not in a liquidity crisis,” Friedland said. “They’re not in danger of running out of cash as long as they can access the markets with revenue anticipation notes, which everybody anticipates they’ll be able to do.”
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