Schwarzenegger Signs California Budget, Ending 85-Day Standoff

Signing the budget ended bitter partisan deadlock on how to close the $15.2 billion deficit.

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SAN FRANCISCO—Whew, it's finally over. After a record 85-day impasse, California Gov. Arnold Schwarzenegger signed the state's budget yesterday, ending a bitter partisan deadlock over how to close the state's $15.2 billion deficit—but raising the specter of another battle when next year's budget negotiations begin.

The governor refused to sign the budget in the Capitol rotunda, where signing ceremonies are normally conducted, opting to hold a quiet ceremony in his office, instead, with a few local officials. "Why I didn't feel like celebrating in the rotunda is that it is inexcusable to have a budget that's three months late," Schwarzenegger said afterwards. "It's three months late because both of the parties stayed in their ideological corners and refused to come out."

California legislators have been at loggerheads since early this summer over how to solve the state's perennial budget problems. Democrats have been suggesting a variety of spending cuts and tax increases, while Republicans have refused to consider raising taxes. The budget was supposed to be delivered by July 1, but the deadline passed with no agreement in sight.

Schwarzenegger spent months trying to find middle ground between the two sides, without success. In January, he suggested a massive across-the-board 10 percent spending cut across all state agencies. Then, a few months later, he proposed that the state borrow against its future lottery earnings to close the gap. When no compromise seemed likely, in July, he laid off more than 10,000 state employees and dramatically slashed the pay of more than 200,000 government workers to $6.55 an hour, the federal minimum wage.

Even that didn't seem to work. John Chiang, the state controller, refused to implement the cut and didn't back down even after the governor's office sued him to make him comply. In August, with budget negotiations stalled completely, Schwarzenegger, a longtime opponent of raising taxes, proposed a temporary 1 percent sales tax increase to end the standoff. Republicans stood their ground, though, Democrats demanded a permanent tax hike, and Schwarzenegger's approval ratings plummeted. Barely 1 in 3 voters here say they approve of the job he is doing, down from nearly 60 percent last year. The state's powerful prison guards' union announced this month that it would launch a recall campaign to remove him from office.

So, was it all worth it? The version of the state's budget Schwarzenegger signed yesterday includes $7.1 billion in spending cuts. The rest of the budget gap will be closed with a variety of accounting changes—some experts call them "gimmicks"—that will generate new revenue by collecting some taxes earlier in the year than normal, removing a few corporate tax deductions, and hiking the penalties charged to companies that underpay their taxes. Lawmakers also acceded to Schwarzenegger's demands to build a sturdier rainy-day fund into the budget and gave him the power to make spending cuts during the year.

Neither Democrats nor Republicans seemed pleased with the final product, especially after Schwarzenegger's last-minute, line-item veto of $510 million in funds for HIV/AIDS education and a tax rebate program for low-income elderly renters, among other programs. "I would like to say it's finally over with, but really the state is no better off than it was before," said Senate Majority Leader Don Perata. "We have simply rolled the problem into next year... There isn't much to be proud of."

In only a hundred days, California lawmakers will begin negotiations on the next budget.