State Budget Crisis Spurs Call for a Special Session

SACRAMENTO —  Gov. Gray Davis said Thursday he will call a special session of the Legislature on Dec. 9 to consider $5 billion in spending cuts and other emergency steps to “staunch the bleeding” in the state’s shaky finances.

Davis warned that the 2003-04 budget shortfall will soar beyond the staggering $21.1 billion projected earlier this month by the nonpartisan legislative analyst’s office, and he said he is imposing a freeze on much state spending. He refused to discuss any specific cuts or tax increases he is considering but said he would not ask legislators to raise taxes in December.

“This problem is so big that it behooves all of us to set aside our ideological preconceptions and find a way to come together in a bipartisan fashion to address this shortfall,” said Davis, speaking to reporters by telephone from Los Angeles.

The moves foretell the bitter budget conflicts that await California’s elected leadership in 2003. Democrats and Republicans are bracing for a brutal budget year, partly because of decisions that put off hard choices until after the Nov. 5 election and partly because the state’s economy continues to stumble.

Davis’ decision to call the Legislature back to Sacramento will give the Assembly and Senate an early start on the budget talks and allow bills passed as part of the special session to take effect more quickly.

Although unusual, such sessions are not unheard of: The Legislature, for instance, met in special session in 2001 to grapple with the state’s energy crisis.

Davis laid out his proposals Thursday afternoon in a 20-minute phone conversation with Democratic and Republican leaders of the state Senate and Assembly. It was the first “Big 5” meeting the governor has convened since Nov. 14, 2001, at the onset of a similar fiscal crisis last year.

Davis must submit a balanced budget to the Legislature by Jan. 10.

Beyond the obvious fiscal challenge, he must also repair his strained relations with legislators in both parties while bridging vast philosophical differences between majority Democrats and minority Republicans. Although Democrats command majorities of both houses of the Legislature, Republicans still hold enough seats to block passage of the budget -- which requires two-thirds approval -- if they hold together as a bloc.

The partisan differences were underscored in comments by legislative leaders after their conversation with the governor.

Senate Republican Leader Jim Brulte of Rancho Cucamonga and Assembly Republican Leader Dave Cox of Fair Oaks said they would not support higher taxes -- a position that some Democrats say is indefensible in the state’s current predicament.

“I’m going to be very resistant to punishing the taxpayers because this state has overspent,” Brulte told reporters later.

He and Cox said they were eager to examine any cuts proposed by Davis. But they again refused to provide details of how they would fill the budget hole without raising taxes -- a position that infuriates Democrats.

“My theory is, if they think they can do this all with cuts, then put their proposal forward and we’ll have hearings around the state and see if the people go for it,” said Senate Leader John Burton, who has vowed to spare low-income Californians from shouldering the brunt of the cuts.

“To do this solely with cuts is just impossible,” said Assembly Speaker Herb Wesson (D-Culver City).

In a graphic reflection of how the state’s economy is dragging down the budget, Legislative Analyst Elizabeth Hill projected earlier this month that general fund tax collections in 2002-03 will fall $4.1 billion short of projections and $6.5 billion short of projections in 2003-04, largely because of lower personal income tax receipts.

Wesson applauded Davis for “beginning the process early” and for pledging to convene regular meetings with the legislative leadership. Davis’ lack of such communication was a chronic source of tension during his first term.

In the fight over the 2002-03 budget earlier this year, faced with a shortfall that eventually ballooned to $24 billion and a looming election, Davis largely bypassed Republican legislators -- much to the lingering fury of GOP lawmakers.

Since the projections of another huge budget deficit were made public earlier this month, Republicans have chided Davis and legislative Democrats for failing to cut spending earlier.

With state tax collections down sharply because of the weak economy, both sides agree there will be no way to avoid severe budget cuts in the current crisis.

The state Finance Department is working with senior Davis advisors to craft a budget, after having asked state departments and agencies to show how they would cut their budgets by 20%.

Davis said the full extent of the crisis won’t be known until mid-December, but the consensus of his Finance Department and other experts is that “the $21-billion deficit is going to be low.”

The special legislative session would enable the state “get on top of this problem as soon as possible,” Davis said.

He said he would exercise his executive authority to “freeze as much state spending as possible” before giving legislative leaders a list of proposed cuts and other savings measures during the first week of December.

Davis said the package would not include tax or fee increases.

He also declined to say whether he would encourage the Legislature to amend the 2002-03 budget to pull back $1.9 billion in education spending under Proposition 98, a state initiative that mandates a certain level of education funding.

Legislative Analyst Hill said the Proposition 98 requirement was inadvertently over-funded by $1.9 billion in the current budget.

Asked specifically if schools would be exempted from cuts, Davis replied: “I’m not ruling anything in. I’m not ruling anything out. Education is my highest priority and remains so, but we clearly have to deal with this long-term budget problem.”

However, Davis denied that the state will have trouble paying its bills when the current fiscal year ends in June.

He said his administration will be “taking action periodically throughout the current year to achieve even more savings. We just want to get started earlier than last year, be more aggressive than last year.... “

The distrust between Republicans and Democrats bubbled to the surface in the hours before the conference call took place. Republican leaders were miffed that Davis scheduled a media teleconference following their discussion, which they considered to be a private exchange of ideas. The Republicans responded by scheduling their own teleconference with reporters, 30 minutes after the governor’s scheduled news conference.

Republicans contend that the problem is the result of too much state spending and should be addressed by cutting programs. Democrats blame the huge shortfall on the shaky national economy and say the solution should be a mix of spending cuts and tax increases.

Budget-cutting options are limited by federal spending mandates, voter-approved initiatives such as Proposition 98 and constitutional requirements, which involve roughly two-thirds of general fund spending.

In releasing her budget projections earlier this month, Hill urged lawmakers to “put everything on the table ... all programs [and] revenue sources,” including tax increases.

Many legislators of both parties say it is a foregone conclusion that the Legislature is going to restore vehicle license fees to 1998 levels, which could raise about $3.8 billion a year. Democrats also support an increase in upper-end personal income tax brackets.