Budget Panel Breaks Down

SACRAMENTO —  Providing a vivid example of just how far apart lawmakers are on closing California’s $38-billion budget shortfall, a bipartisan coalition of moderates who vowed to get past political bickering and selflessly work to solve the problem has fallen apart.

A budget plan that spawned from the work of the group will be unveiled today but bears the names of only two members -- one Republican and one Democrat. The rest of the 18 moderate lawmakers are not signing on. The plan includes sharp program cuts and a call for a half-cent sales tax increase.

The group appears to be the latest casualty of pressure from both Republicans and Democrats to vote the party line or face severe consequences.

Pressure on lawmakers not to compromise was clear when Senate Republican Leader Jim Brulte recently threatened to work to end the political career of any GOP lawmaker who votes with Democrats to raise taxes. For Democrats, it manifested itself in a recent episode in which a union lobbyist threatened to undermine a politician who voted against a farm workers-supported bill. Democrats were so jolted by the incident that they had to discuss it in caucus for hours.

The result for budget negotiations has been gridlock. And lenders and credit raters on Wall Street are taking notice. On Monday, Moody’s Investors Service downgraded the state’s credit outlook from stable to negative. California already had the lowest credit rating of any state in the country. The latest move by Moody’s leaves the state just two levels away from a junk bond rating, which would drive up the cost of borrowing by as much as hundreds of millions of dollars.

Moody’s noted that “minimal progress has been made by the Legislature” on the budget. The report also cautioned investors about “the politically polarized nature” of the budget debate.

Moody’s appears to be girding for what many in the Legislature predict will ultimately be a compromise budget that does not fix the state’s imbalance between spending and revenues, and pushes much of the problem off another year.

“I think the reality is we are heading toward a ‘get-of-town alive’ budget,” said Assemblyman Keith Richman (R-Northridge), who along with Assemblyman Joe Canciamilla (D-Pittsburg) authored the plan that will be unveiled today.

According to a copy obtained by The Times, the plan calls for cutting K-12 and higher education funds by a total of $1.24 billion, and health and human services funding -- including MediCal and aid to the aged and disabled -- by $1.4 billion. Local government would take a one-time half-billion-dollar hit. Also proposed for significant reduction is the Department of Corrections, which would be cut by $150 million.

The plan includes a half-cent sales tax increase, and assumes Gov. Gray Davis will triple the tax on vehicles by administrative order, but rejects $1.8 billion in new taxes advocated by Assembly Democrats.

Making the budget balance under the plan would also involve major layoffs of state workers and fee increases for state university and community college students. The plan would place a firm cap on state government spending, limiting it to the growth rates of population and inflation. It also calls for reducing the cost businesses must pay for workers’ compensation and extending a $500-million tax credit for manufacturers.

The nonpartisan legislative analyst has reviewed the plan and confirmed in a letter that it would significantly decrease the year-to-year imbalance between revenues and spending in the state.

The kind of opposition the plan is likely to face appeared Monday on the streets of Los Angeles, when a few hundred teachers, laborers, church leaders, housing advocates and others rallied against deep cuts and spending caps. Many of them boarded buses after the event and headed to Sacramento, where they will begin lobbying lawmakers today to push for more taxes and resist program reductions.

Canciamilla said that while the plan would bring the state back into the black within a few years, there will be plenty in it to provoke “wide displeasure from everybody.”

“It’s a good budget,” he said, adding that finding a way to solve the state’s fiscal problems “is not a mystery.” It’s a matter of having the stomach for it, he said.

Both lawmakers expressed disappointment that more of the group could not rally behind a plan.

“This is an extremely difficult situation where much of the debate is driven by special interests and the extremes of both political parties,” Richman said.

He added that term limits and the latest redistricting of legislative seats to make them “safer” for both Republicans and Democrats has created a situation where the voters whom lawmakers fear most are party loyalists.

“I don’t disregard any individual’s difficult choices in this budget situation,” Richman said. “It is human nature for individuals to be concerned about the future of their careers.”

Republican consultant Dan Schnur said Richman and Canciamilla have high enough profiles that they can afford to take the risk. For other moderates in the Legislature, it is more dangerous.

“When it comes time to making the tough decisions, members of this group are in just as difficult a spot as the rest of the Legislature,” he said. “For members of both parties, bipartisanship is a fine thing in concept. But when it’s time to repudiate your party’s principles, it gets understandably much more difficult.”

Other lawmakers in the group denied that the threats by Brulte or anyone else had any impact on their decision not to be involved with the budget proposal that will be released today.

“We didn’t have agreement among the group,” said Assemblyman Tom Harman (R-Huntington Beach).

“I’m told it has a tax increase, which is not acceptable to me.... Most Republican members are opposed to taxes anyway, without Sen. Brulte’s input.”

Another Republican member of the group, Assemblywoman Patricia Bates of Laguna Niguel, said the group is reflective of the Legislature as a whole. “We’re polarized over the same things,” she said.

That polarization was clear in the Senate early Monday when lawmakers insulted one another while debating the confirmation of Department of Finance Director Steve Peace, a former Democratic senator himself.

Sen. Jeff Denham (R-Salinas), a freshman targeted by Democrats for defeat in 2006, said the combative finance director’s “odd behavior and questionable integrity concern me.” He noted that over the years Peace had engaged in “abusive” name-calling of colleagues and a lobbyist.

Senate Leader John Burton (D-San Francisco) accused the “very junior” Denham of “stepping over the line” in criticizing Peace and of inaccurately recounting Peace’s public record. He warned him to not “step out of line” in the future.

Peace’s appointment was easily approved on a bipartisan 32-6 vote.

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Times staff writers Carl Ingram and Nancy Vogel contributed to this report from Sacramento and Jennifer Oldham from Los Angeles.