Gov. gains leverage on budget

SACRAMENTO —  State lawmakers’ will to override a budget veto began to falter Wednesday, emboldening Gov. Arnold Schwarzenegger to press them for more concessions.

Tough talk from lawmakers about quickly overriding Schwarzenegger’s expected veto subsided as Republicans expressed reluctance to vote for borrowing from taxpayers -- a provision of the budget Democrats passed without them.

The borrowing, in the form of a 10% increase in state tax withholding to be refunded later without interest, would require Republican votes to take effect if the governor vetoes the budget. The extra withholding would generate cash by accelerating the collection of taxes that normally would not be paid until the next fiscal year.

“It is not clear whether members of our caucus would vote for that,” said Assembly Budget Committee Vice Chairman Roger Niello (R-Fair Oaks).

Legislative leaders shifted their efforts Wednesday from gearing up for an override to avoiding one altogether. Several Capitol sources involved in the confidential negotiations said lawmakers told the governor they would change the part of the budget that prompted his veto threat: restrictions on the state’s rainy day fund. The governor had objected that the fund was too easy to raid.

Schwarzenegger told the legislators that the opportunity to get his signature by meeting his demand for tighter reins on the fund had passed.

Schwarzenegger spokesman Aaron McLear would confirm only that lawmakers offered to meet the governor’s conditions.

“The legislators today offered that deal,” he said. “The governor is taking that under advisement.”

Schwarzenegger has now shifted his focus to the borrowing from taxpayers. In the private talks and at public media events, he is demanding that lawmakers remove the provision from the budget and replace it with something else. He has been vague about what exactly he wants. For example, he has not renewed calls for a sales-tax hike -- which he had earlier advocated -- or deeper cuts in state services.

“This has been a moving target,” said Senate Leader Don Perata (D-Oakland).

Legislative staff and legal experts are scurrying to figure out what options they have. No Legislature in the modern history of California has overridden a budget veto.

“These are historic and uncharted waters,” Niello said. “There are so many different scenarios. It is impossible to guess” how each one would go.

At a midafternoon rally in Fresno, the governor called the borrowing in the budget “unacceptable.” He compared it to what the state did when he was first elected governor in 2003 and the budget was balanced with the help of $15 billion of borrowing -- debt that he advocated and voters approved. The state is still repaying that debt.

He said the Legislature’s plan is to “borrow from the future, kick the problem down to the next year with no serious reform.”

Schwarzenegger appeared undeterred by protesters at the rally representing government service providers who have not been paid in the absence of a budget. The state owes billions of dollars to healthcare clinics, day care centers, nursing homes, schools and others whose funding has been cut off since the July 1 start of the fiscal year. Some of the providers have been forced to shut down. Others have stopped paying staff. California has gone a record 80 days without a budget.

If lawmakers have to go back to the drawing board and craft a new spending plan, said Assemblyman Sam Blakeslee (R-San Luis Obispo), “we likely will be in a position where it takes many weeks to forge a new agreement.”

Lawmakers expressed exasperation with the governor’s pronouncements. They said none of the three budget plans the governor had proposed since January had enough support in the Legislature to pass. The linchpin of the governor’s final proposal, in August, was a temporary one-cent sales tax increase. Schwarzenegger was able to get support for it from business and anti-tax organizations, but not from Republicans in the Legislature.

Assembly Republican Leader Mike Villines of Clovis has long said the restraints on the rainy day fund the governor wants would do nothing to keep the state from overspending. But he said that once the Democrats agreed to them, legislative leaders expected the governor to back off his planned veto.

“He said in writing and he said publicly that if he got this budget reform, he would sign this budget,” Villines said. “When you say, ‘This is what I need to close,’ the expectation is usually that when you get it, you close.”

But the governor appears invigorated by the public lashing the Legislature has taken over the $106.4-billion general fund spending plan it approved in the wee hours Tuesday, which does little to address the state’s chronic financial problems. The proposal pushes much of the $15.2-billion shortfall into the future.

Educators, healthcare groups and public employee unions are attacking the plan as fiscally irresponsible and unworthy of California. Editorial and opinion writers declared it to be the worst they have seen in a state known for financial mismanagement. Schwarzenegger quoted from several of the editorials at the Fresno event.

Educators and healthcare providers -- normally allies of the Democrats who control the Legislature -- held a rally at the Capitol on Wednesday to support a veto.

The groups, which included the state’s two biggest teachers unions and the state school boards association, were hopeful that if the budget falls apart lawmakers will once again consider raising taxes.

It is unclear whether the Legislature can override a budget veto without including the 10% boost in tax withholdings. That provision would provide more than $1.5 billion for the current fiscal year, and the budget would be out of balance without it.

California’s constitution requires a balanced budget.

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evan.halper@latimes.com

jordan.rau@latimes.com

Times staff writers Patrick McGreevy and Nancy Vogel contributed to this report.