California budget plan: Key elements

Lawmakers agree to $12.5 billion in tax hikes and $14.8 billion in spending cuts.

By Times staff writers
8:40 AM PST, February 19, 2009

Key elements of the budget package approved by the Legislature this morning:

• $14.8 billion in spending cuts

• $12.5 billion in tax increases

• $5.4 billion in borrowing

• $7.8 billion in federal stimulus funds

What's next:

Voters will be asked in May to approve restraints on government growth, borrowing against future state lottery revenues, cuts in mental health and early-childhood education programs. In June 2010, they will consider the open primary and restrictions on legislative pay hikes.

The governor may rescind the 20,000 layoff notices recently sent out.

Scheduled Friday furloughs will end, but state workers will be furloughed eight hours a month.

The state ultimately will resume paying all its bills, including tax refunds. But doing so could take weeks.

Stalled public-works projects could restart

Source: California Legislature, Times reporting.

California Legislature finally approves new budget

By Jordan Rau, Evan Halper, Patrick McGreevy and Michael Rothfeld
8:19 AM PST, February 19, 2009

Reporting from Sacramento -- Voting at dawn to end a three-month impasse, the California Legislature passed a budget package that addresses the state's massive deficit with billions of dollars in new taxes and program cuts after Democrats and Gov. Arnold Schwarzenegger reached a deal with a GOP holdout.

Sen. Abel Maldonado of Santa Maria provided the final Republican vote needed to pass a spending plan, which includes more than $12 billion in tax hikes. In exchange, Democrats agreed to rewrite election rules that Maldonado said had allowed the Capitol to become paralyzed by partisanship, leading the state to the brink of financial ruin.

The plan came together after midnight, following seven unsuccessful votes held throughout the day and into the night in the Capitol, which Sen. President Pro Tem Darrell Steinberg (D-Sacramento) had locked down Tuesday, barring senators from leaving. California's financial state had deteriorated to the point where Schwarzenegger ordered layoffs of 10,000 state workers and the suspension of hundreds of public-works projects. Early income-tax refunds have been delayed, and public anger has grown.

"I'm very relieved for the people of California," Steinberg said. "There's not a lot of good news to come out of a $41-billion budget deficit, except that we in fact solved it."

The final plan includes most of the framework of the original budget compromise from Democratic and Republican leaders. There are billions of dollars in cuts to schools, healthcare institutions, higher education and programs for the poor. If signed by Schwarzenegger, who helped devise the package, it also would raise personal income taxes and the state sales tax, although a 12-cent per-gallon increase in gasoline taxes was eliminated in the final hours. The gas tax would be replaced with federal economic stimulus money.

"This is a very difficult budget, but we have turned this crisis into an opportunity to make real, lasting reforms for California," Schwarzenegger said in a statement. He has long been a proponent of the election-law changes included in the final package. "Some special interests may not like this budget -- but like I always say, what's good for the people is not always good for special interests."

Schwarzenegger, who was initially swept into office as an anti-tax crusader, has come under attack from other Republicans for embracing tax hikes to solve the state's fiscal crisis. But despite intense lobbying by the governor, Senate Republicans had continued to hold out.

Soon after the spending plan passed, Schwarzenegger stepped outside his office and dismantled a debt clock he had installed that displayed how much money the state was losing each day the state failed to take action on the deficit.

Democrats initially said Maldonado's call for "open" primaries, in which voters could cross party lines and candidates of all parties would compete in the same primary, followed by a runoff of the top two vote-getters, was too substantial to be pushed through in a budget deal. But Maldonado said the current budget stalemate proved that California could not return to fiscal sanity without fundamental changes in the way it elects its representatives.

"Without an open primary, we're going to be here again and again and again, voting on budgets," he told reporters. "This system is broken and we need to reform it."

Modeled on election rules in Washington state, the change -- if approved by California's voters next year -- would undermine the influence of political parties. It was unpopular with Democrats, but their leaders pressed them to accept it as the price of ending the political logjam.

"My caucus understands we have to do some things we don't like," said Assembly Speaker Karen Bass (D-Los Angeles).

Wednesday had begun in uncertainty, with Dennis Hollingsworth of Murrieta elected as the new Republican leader in the state Senate shortly after a midnight coup unseated Dave Cogdill of Modesto. Hollingsworth promptly insisted that months of negotiations over how to close California's deficit budget talks begin anew and lawmakers abandon the sales, income and gas taxes hikes that were part of the fiscal package Cogdill helped negotiate.

"We should reopen negotiations and we should pass a no-tax budget," Hollingsworth said. "The majority of the Senate Republican caucus said we want to stand for a no-tax budget."

But they ultimately marginalized him and the 10 GOP senators who had already ruled out any new taxes. Democrats and the governor refocused their efforts away from the caucus leadership and on the small group of GOP dissidents who signaled they were prepared to vote for their budget package. Cogdill remained in support of it, as did Sen. Roy Ashburn of Bakersfield.

The Senate convened every few hours Wednesday, but the debate on the chamber floor was unproductive. Democrats read letters from constituents beseeching them to pass the budget so state services could resume. Republicans parried with correspondence from their backers decrying the imposition of higher taxes on already struggling families.

Behind the scenes, negotiators stayed focused on Maldonado and GOP Sen. Dave Cox of Fair Oaks, both of whom had indicated they might be persuaded to cross the aisle and vote with Democrats to pass the budget. Legislative leaders and Schwarzenegger's aides pored over wish lists from both senators.

After lunching on salmon and swordfish with Schwarzenegger at an Italian restaurant a few blocks from the Capitol, Maldonado emerged enthusiastic.

"The governor is on board with my constitutional amendments," Maldonado said, referring to his request that state election law be changed to help moderate politicians such as him and to penalize lawmakers when the state's budget is late.

"If everybody is happy with the drafts, we'll have a budget for the state of California," he said.

Maldonado's proposal did not go down well with many Democrats. Many lawmakers in both parties hold safe seats that would become competitive if Maldonado's request were enacted.

Others said they objected to rewriting California's fundamental rules of democracy in the middle of the night, all to secure a vote to keep the state from financial ruin. They also accused Maldonado, who is in his last term in the Senate, of trying to leverage his budget vote to make a future statewide run easier.

"I'm not here to worry about Abel's political future," said Sen. Gloria Romero (D-Los Angeles).

Maldonado denied such a motive, and the final version appeared to have little use for his aspirations for statewide office in 2010, because it would not take effect until 2012.

Democrats remained dubious.

"I'm open to discussion on the merits of the open primary," said Sen. Joe Simitian (D-Palo Alto). "But I'm hard-pressed to understand what on earth it has to do with solving the state budget deficit."

Sen. Denise Moreno Ducheny (D-San Diego) said Maldonado's suggestion that legislators' pay be docked whenever the state budget was not on time was "particularly offensive" and could give wealthy legislators inappropriate leverage in negotiations.

"You could have rich people telling everyone else, 'Vote now if you want to feed your family.' " Ducheny said. "I think it's unethical . . . to tie your pay to your vote."

Maldonado ultimately agreed to drop that measure out of the package. This morning, Democrats agreed to another provision pushed by Maldonado that would keep legislators from getting pay raises in years when the state ran a budget deficit.

Just before 5 a.m., the Senate approved the open-primary measure. Several Democrats were so resistant to the notion that the Senate had to recess while they were coaxed into giving their support. Near tears, Romero called it "a disgusting process" and "not good government" as she changed her vote to yes.

The sun had risen when the state Assembly passed the tax bill at 6:30 a.m. Assembly GOP leader Mike Villines of Clovis, Roger Niello of Sacramento and Anthony Adams of Hesperia provided the three GOP votes to put the measure over the top.

"Mark our words: There's not going to be any more taxes from this body," Villines said.

Dissenting Republicans -- who have been warning for years that California was spending recklessly -- told their colleagues that this budget also would develop holes.

The deal with Maldonado emerged Wednesday after negotiations with Cox deteriorated. Schwarzenegger and Democrats never agreed to Cox's call to postpone enactment of California's landmark law limiting greenhouse-gas emissions.

That law, which won Schwarzenegger international acclaim, is one of the governor's proudest achievements. But many business groups in California complain that it would be expensive to implement.

Democrats also did not budge on other Cox demands: to give employers more leeway in scheduling meal and rest breaks for their workers, and his insistence that legislators reduce some of the $14.4 billion in taxes contained in the budget package. Maldonado, however, incorporated that latter issue into his demand, and Democrats stripped out the gas taxes, worth about $2 billion.

The final version of the plan would raise the state sales tax by 1% and nearly double the vehicle license fee, to 1.15%. It would also reduce the dependent credit Californians are allowed to claim on their taxes. The package would increase personal income tax rates by 0.25%.

"It's just plain wrong," Hollingsworth said just before the vote.

Ashburn took to the floor to recall Ronald Reagan's decision to raise taxes in 1967 as California governor. "As president of the United States, my hero, my role model, the person who I have looked at for inspiration, raised taxes three times," Ashburn said.

He said his fellow GOP senators had failed to understand the difference between being a politician and being an elected official.

"You know this deficit cannot be solved by cuts alone," he told them as they closed their eyes or looked away. "What would Ronald Reagan do? Ronald Reagan would vote yes."

After his speech, Democratic senators came over and hugged Ashburn, who had negotiated $100 million in tax credits to help home builders and tax breaks for horse-racing tracks.

All the taxes in the budget package would last for two years, but they would be extended another two years if voters approve a permanent spending cap that would be placed on the May 19 ballot as part of the complex deal worked out with Republican leaders over several months. That spending cap would prevent future legislators from hiking state spending when California's treasury is flush and instead deposit that money into a giant rainy-day fund for unexpected deficits. Only when that reserve exceeded an eighth of the state's revenues could legislators dip into it for other purposes.

The open-primary measure would go on the June 2010 ballot, giving opponents plenty of time to work up opposition. The rules would apply not only to state legislators but also to members of Congress, who may tap their ample war chests to defeat it.

Sen. Mark Leno (D-San Francisco) predicted: "It is going to get killed for sport."

Latin Americans fret as Stanford crisis spreads - Depositors turned away from Stanford banks

Wed Feb 18, 2009 6:50pm EST


By Ana Isabel Martinez

CARACAS, Feb 18 (Reuters) - Well-off Mexican pensioners joined middle-class Venezuelans in a frantic quest on Wednesday to track down their savings as the fraud scandal enveloping U.S. broker Stanford Group Co spread to Latin America.

Crowds flocked to Stanford offices in Caracas and Mexico City and telephone lines buzzed as harried Stanford staff fielded calls round-the-clock about frozen accounts. Regulatory authorities moved on the bank's assets in Ecuador and Panama and its Colombian brokerage unit halted stock trading. [ID:nN18432144]

"I heard the news and came straight down," said Caracas resident Josefina Moreno, who said her son had about $10,000 invested. "We've had money here for 2 years, and I want it back."

The U.S. Securities and Exchange Commission (SEC) has accused billionaire Allen Stanford, a high profile cricket promoter, and two Stanford executives of fraudulently selling $8 billion in high-yield certificates of deposit in a scheme that stretched around the world from Texas and Antigua. Venezuelan investors alone could have more than $2 billion invested in the scheme. [ID:nN17381625]

One Venezuelan official familiar with some Stanford Group operations said that Venezuelan investors were mainly middle-class or rich individuals with deposits ranging from $10,000 to tens of millions of dollars.

The SEC civil complaint, filed on Tuesday in federal court in Dallas, Texas, named Stanford International Bank (SIB), based in Antigua with 30,000 clients in 131 countries and $8.5 billion in assets, and the group's Houston-based broker-dealer and investment adviser units. In all, the company claims to oversee $50 billion in assets.

Venezuelan investments account for an estimated third of money in SIB, authorities said. [ID:nN18444225]

Stanford Bank Venezuela sought to calm clients on Tuesday by saying its assets were not linked to SIB, and requested a national banking authority representative to sit on its board. [ID:nN18423175]

SHATTERED SHELTERS

In a region all too familiar with financial turmoil, market meltdowns and frozen bank accounts, the Stanford scandal has panicked investors who were already worried about the effects of the global financial crisis on their jobs and savings.

Many wealthy Venezuelans look to overseas accounts as a way of dealing with tough currency controls, soaring inflation and their concerns that socialist President Hugo Chavez is driving the oil rich nation toward Cuba-style communism.

At Stanford's Mexico City office, middle-aged women carrying Louis Vuitton and Carolina Herrera designer purses fiddled with flashy necklaces as they waited alongside Jewish men in skull caps, switching between Spanish and Yiddish as they spoke on their cellphones.

Stanford staff handed out statements that said Stanford accounts had been frozen and provided wire transfer instructions for clients who wanted to liquidate accounts. Some of those waiting in line wept into their cellphones.

Some said they did not know if their money was in Mexico or Houston or Antigua.

"All my capital is in this bank, and I don't know what I am going to do. They won't attend to us. They are locked inside. They don't want to talk to us," said Karyna Kleinckwort, a widow in her mid-thirties.

BAD NEWS AFTER MIDNIGHT, CONFUSION REIGNS

Stanford Fondos has been licensed to operate in Mexico since 2005. The country's bank regulator said that as of Nov. 2008, Stanford had sold investment stocks worth roughly $45 million to some 3,400 clients in Mexico.

"Yesterday, our advisor called us at 1 a.m. and told us he could not believe it," said Maria Esther Azuela, a housewife in her mid-sixties. "This is a big blow."

In Quito, Ecuador, confusion ruled. After the government announced that it was investigating the operations of two local units of Stanford, Anita Cazar rushed to claim her cash. [ID:nN18454119]

"I don't know what is happening," said Cazar, 50, who joined other investors looking for answers. "I saw it in the newspaper, but I want to get my money out just in case."

The Quito stock exchange suspended Stanford's local brokerage house on Wednesday from operating on that exchange for 30 days. [ID:nN18422837]

Santiago Noboa, head regulator for markets in Quito, said the Stanford units managed a fund and investor portfolios totaling about $15 million, but authorities were yet unaware of other instruments the firm might have sold locally.

In Colombia, a local unit of Stanford halted activities on the Colombian stock exchange. Operations there would be limited to fulfilling commitments and returning funds, officials said. [ID:nN18421308]

Peruvian securities regulator Conasev sent an inspection team to Stanford's broker-dealer office in Lima. Conasev said the unit has net assets in Peru of 6.8 million soles ($2.1 million). [ID:nN18426995]

In Panama, bank regulators seized Stanford's local affiliate, Stanford Bank. Nobody lined up outside the branch in Panama City, but a four-page note pinned to the door told of the banking superintendent's decision to take over the bank because of a threat of a run on its assets. [ID:nN17401186]

"Because of the aforementioned," it read, "the interests of the depositors are at risk and it is necessary to carry out an immediate administration control of Stanford Bank, Panama." (Reporting by Caracas, Mexico City, Quito, Panama, Bogota bureaus; Writing by Patrick Markey; Editing by Toni Reinhold)
******************************************************************************
Depositors turned away from Stanford banks

By BEN FOX, Associated Press Writer Ben Fox, Associated Press Writer – Wed Feb 18, 5:43 pm ET

ST. JOHN'S, Antigua – Panicky depositors were turned away from Stanford International Bank and some of its Latin American affiliates Wednesday, unable to withdraw their money after U.S. regulators accused Texas financier R. Allen Stanford of perpetrating an $8 billion fraud against his companies' investors.

Some customers arrived in Antigua by private jet and were driven up the lushly landscaped driveway of the bank's headquarters, only to be told that all assets have been frozen pending an investigation by Antiguan banking regulators.

"I don't know what to think. I have my life savings here," said Reinaldo Pinto Ramos, 48, a Venezuelan software firm owner who flew in by chartered plane from Caracas Wednesday with five other investors to check on their accounts. "We're waiting to see some light."

Banking regulators and politicians around the region are scrambling to contain the damage after the U.S. Securities and Exchange Commission filed civil fraud charges against the billionaire on Tuesday. Regional Director Rose Romero of the SEC's Fort Worth office called it a "fraud of shocking magnitude that has spread its tentacles throughout the world."

Specifically, U.S. regulators accused Stanford, two other executives and three of their companies of luring investors with promises of "improbable and unsubstantiated" high returns on certificates of deposit and other investments. They asked a federal judge to freeze all three companies' U.S. assets and to seek the repatriation of any of their assets overseas.

That would include the $7.2 billion managed by the Antigua-based Stanford International Bank, which has affiliates in Mexico, Panama, Colombia, Ecuador, Peru and Venezuela. Also frozen were assets of Houston-based Stanford Group Company and Stanford Capital Management.

"The fallout threatens catastrophic and immediate consequences" for the twin-island nation of Antigua and Barbuda, said Prime Minister Baldwin Spencer. It also could rattle the economies of smaller nations throughout the region.

Stanford, 58, has a personal fortune of $2.2 billion, according to Forbes magazine. He owns a home in St. Croix, in the U.S. Virgin Islands, and operates his businesses from Houston and Antigua, where his companies and charity have had such a prominent role that the islands' government knighted him in 2006.

SEC spokesman John Nester said the agency does not know where Stanford is. James Sullivan, the U.S. marshal for the Virgin Islands, said agents are monitoring his "extensive holdings" in St. Croix, including a boat he sometimes he docks there, but could not say whether he is currently in the territory. He does not currently face any charges requiring his presence in court.

"As of right now, all we are doing is an ongoing investigation to monitor his holdings, for lack of better term, and we are not actively pursuing him," Sullivan told The Associated Press.

Stanford also has been a major political player in the U.S., where some congressmen quickly announced they would donate his campaign contributions to charity.

The Stanford Financial Group, through its political action committee and employees, has contributed $2.4 million to political candidates, parties and committees in the U.S. since 1989, with nearly two-thirds going to Democrats, according to the Center for Responsive Politics, a group that tracks campaign spending.

Most of that cash flowed during the 2002 election cycle, when Congress was debating a financial services antifraud bill that would have linked the databases of state and federal banking, securities and insurance regulators. The bill ultimately died in the Senate, where the biggest recipients have been Sen. Bill Nelson, D-Fla. ($45,900); Sen. John McCain, R-Ariz. ($28,150); Sen. Chris Dodd, D-Conn. ($27,500); and Sen. John Cornyn, R-Texas ($19,700). Rep. Pete Sessions, R-Texas also received $41,375.

Stanford and his wife Susan also donated $931,100 of their own money, with 78 percent going to Democrats, including $4,600 to President Barack Obama's presidential campaign last May 31. Records show $2,300 of that was returned on the same day.

Governments across the region took a variety of actions Wednesday to protect local investors who'd deposited money with Stanford-linked institutions.

Colombia suspended the activities of Stanford International Bank's local brokerage Wednesday to protect "clients and investors." Panama occupied Stanford bank branches following a run on deposits, which its banking agency described as an isolated "consequence of decisions adopted by foreign authorities."

Assets at the bank's four Panama branches, which reportedly held $200 million in deposits at year's end, are held largely in liquid, fixed-income investments that can more easily be converted into cash to cover deposits if necessary, the bank said.

In Venezuela, banking regulator Edgar Hernandez said the government was considering a bank request for help after a $26.5 million run on deposits removed about 12 percent of the holdings at Stanford Bank SA in Caracas.

"We suggested an open intervention" by the government, including the possibility of the government or a state-run bank depositing funds to prop up the bank, Hugo Faria, one of the bank's directors, told The Associated Press.

In Mexico, where the Stanford Fondos unit manages about $50 million for some 3,400 clients, a note posted on a shuttered office door in the capital's wealthy Polanco neighborhood announced that all accounts "are temporarily frozen."

"We don't have any other information at this time, you will be contacted in the future with more details," the note said.

Karina Klinckwort, 38, had rushed to the office Wednesday: "Everything I have is with them, everything that my husband, may he rest in peace, invested is with them."

In Antigua, hundreds of depositors lined up outside the Stanford-controlled Bank of Antigua, many clutching portable radios to listen to financial news.

"People have to come to get their money," said electrician Rasta Kente.

Regional regulators warned that panicking will only make things worse.

"If individuals persist in rushing to the bank in a panic they will precipitate the very situation that we are all trying to avoid," said K. Dwight Venner, governor of the Eastern Caribbean Central Bank.

Virgin Islands Gov. John deJongh said he worries the probe will worsen the U.S. territory's flagging economy, potentially costing jobs and investment in local projects. Stanford had pledged to build an office complex next to St. Croix's airport.

Better to declare victory than continue stalemate

George Skelton
Capitol Journal

February 19, 2009

From Sacramento — Any skilled warrior, financier or negotiator knows when to declare victory. A skilled politician plays all three roles.

An astute officeholder will fight for a cause, prioritize public money and negotiate the best deal possible. Then, at the right moment, declare victory before the gain erodes.

Republican state legislators have had a victory ready to be claimed for the last week, but they've sullenly balked. They've wanted a great deal more and have risked losing it all.

As then-Senate Republican leader Dave Cogdill of Modesto told his GOP colleagues, the $41-billion deficit-reduction package negotiated over a six-week span by Gov. Arnold Schwarzenegger and the four legislative leaders -- the so-called Big Five -- was the best deal they were going to get. And it would "keep the state from plummeting off the financial cliff," he said.

The Senate Republican Caucus responded by shooting the messenger. It dumped Cogdill as its leader Tuesday night and replaced him with an ardent anti-tax conservative, Sen. Dennis Hollingsworth of Murrieta. The negotiated deal included $15.1 billion in spending reductions, $14.4 billion in tax increases and $11.4 billion in borrowing.

Cogdill's problem was that he was a leader in name only. He apparently had only one follower willing to vote for a tax increase: Sen. Roy Ashburn of Bakersfield. Cogdill needed at least two out of the 15-member caucus, in addition to himself, for the package to conquer the two-thirds vote hurdle required for passage.

In the Assembly, Republicans have been less rigid. Minority leader Mike Villines of Clovis quickly rounded up the necessary two additional votes required there and probably could have found more if he needed them.

Villines and Cogdill both examined the budget books and realized that the only way to climb out of the historically huge deficit hole was to cut spending and increase taxes.

"There is not much wiggle room," Schwarzenegger told reporters Wednesday as he and Senate President Pro Tem Darrell Steinberg (D-Sacramento) continued to hunt for one more Republican vote. "Anyone that runs around and says that this can be done without raising taxes, I think, has not really looked at it carefully . . . or has a math problem and has to go back . . . and take Math 101."

The deal that Schwarzenegger and legislative leaders struck contained items long on the GOP's wish list -- not everything Republicans demanded, but more than ever would have been achievable had they not been bargaining with potential tax-hike votes.

Foremost is a new spending control and mandatory rainy-day fund. The spending control is key: Budget growth could not exceed a percentage tied to the previous 10-year revenue trend. Any excess revenue would go into the rainy-day fund and be saved for rough times.

The measure must go on the ballot for voter approval. And there's a good chance that because of the overall deal and other bargaining, public employee unions would not oppose the ballot proposition. But support for both the spending control and rainy-day fund would collapse immediately without the budget-tax package.

Another win for the GOP is $1 billion in business tax cuts.

The biggest is a $700-million annual break, beginning in 2011, to encourage nationwide and multinational companies to build facilities and hire employees in California.

Small businesses would earn a $3,000 tax credit for each new employee they hire this year and next, with a cap of $200 million.

And to keep moviemakers in Californians -- a goal of Democratic legislators as well as Republicans -- there would be $100 million in annual tax sweeteners starting in 2011.

Also, there was an after-deal concession to Ashburn to entice his vote: A tax credit of 5% or $10,000, whichever is lower, for people buying a newly constructed home.

"It's a time like this that we need some stimulus," Ashburn said, grinning as he presented the home-buyers bill to the Senate. He apparently was referring to stimulating not only the depressed housing market, but his vote for tax increases.

Normally, there would have been sufficient Senate votes for passage of the budget-tax package last week. Democrats should hold 25 seats, not 24 as they do now -- three short of a two-thirds majority. But Democrat Mark Ridley-Thomas of Los Angeles left his Senate seat last year to become a county supervisor. That seat is still vacant.

And if Democrats and Republicans had not conspired in 2001 to gerrymander a Ventura-Santa Barbara Senate district to make it safe for the GOP, Democrat Hannah-Beth Jackson would have easily won that seat in November. She lost by less than half a percentage point to Republican Tony Strickland, one of the anti-tax leaders.

Proposition 11, approved in November, will create an independent redistricting commission and end that gerrymander foolishness beginning with the 2012 elections.

Meanwhile, many Republicans have acted like they'd rather watch state government go over a cliff than vote for tax increases. Government is always good for ridicule or a laugh. Shut it down. But that didn't work out very well for congressional Republicans and House Speaker Newt Gingrich in 1995.

"I will never let this state go off the cliff," Schwarzenegger repeatedly vowed Wednesday.

Democrats could always resurrect their nuclear weapon: the plan to raise taxes on a simple majority vote by essentially calling them fees. It's legally suspect, but in December it frightened Republican leaders enough to drive them to the bargaining table.

Schwarzenegger vetoed that tax bill. But I doubt he would again -- not with the state he governs sinking into the abyss.

For Republicans, being irrelevant and ignored while a tax bill is enacted on a majority vote would be a huge loss. It's smarter to claim a victory.

GOP senator says he'll vote for budget if it includes constitutional amendments

Sen. Abel Maldonado says he reached a deal with the governor to vote for the budget in exchange for changes in the law to allow open primaries and punish legislators for not meeting budget deadlines.

By Patrick McGreevy and Eric Bailey

February 18, 2009

Reporting from Sacramento — State Sen. Abel Maldonado (R-Santa Maria) says he brokered a deal with Gov. Arnold Schwarzenegger on Wednesday that may position him to break the logjam in Sacramento and cast the final GOP vote needed for budget passage.

But there is a catch -- the agreement could cost some Democratic votes for the bipartisan spending plan that the governor and legislative leaders have put together. And there are none to spare.

Under the deal, Schwarzenegger would support items that Maldonado has demanded from any budget package. They include constitutional amendments, requiring voter approval, that would allow an open primary election, cut legislators' pay if they miss a budget deadline and prohibit pay raises for lawmakers when there are deficits.

"The governor is on board with my constitutional amendments," Maldonado said. "If everybody is happy with the drafts, we'll have a budget for the state of California."

Democrats, however, are skeptical.

"I'm open to discussion on the merits of the open primary," said Sen. Joe Simitian (D-Palo Alto). "But I'm hard-pressed to understand what on earth it has to do with solving the state budget deficit."

Maldonado and the governor discussed the details at a long lunch meeting on the enclosed smoking porch of the posh Spataro Restaurant and Bar a couple of blocks from the Capitol. Afterward there were cigars, including one for the governor's chief of staff, Susan Kennedy.

Aaron McLear, a spokesman for Schwarzenegger, declined to discuss details of the lunch meeting but said the governor has spoken before in favor of an open primary and consequences for legislators who fail to approve budgets on time.

"He has expressed support for both of those ideas in the past," McLear said. "We continue to meet with members of both sides of the aisle to resolve the budget situation."

Schwarzenegger had said this afternoon that GOP lawmakers who insist that the budget could be balanced without new revenue had "a math problem" and that he would not abandon the bipartisan spending plan he helped negotiate, which includes $14.4 billion in tax increases.

The governor's remarks at a Capitol press conference came hours after the newly elected leader of the state Senate's Republicans, who replaced his predecessor in an overnight ouster, said he hoped to kill the existing bipartisan plan to wipe out the state's deficit.

"Anyone who runs around and says this can be done without raising taxes, I think, has not really looked at it carefully or has a math problem and has to go back and take Math 101," Schwarzenegger said.

Senate Republican Leader Dennis Hollingsworth of Murrieta had said this morning that he would like to scrap the agreement Schwarzenegger reached with legislative leaders and renegotiate a package without raising taxes.

"The vast majority of my caucus does not want to see a budget passed with a tax increase," he said. "We don't think it's necessary."

The current plan is one GOP vote shy of passing the Legislature. But Republican opposition to the $14.4 billion in higher taxes that it contains led to the late-night overthrow of Dave Cogdill of Modesto, who as Senate GOP leader helped negotiate the package with Schwarzenegger and other legislative leaders.

For these Republicans, tax increases are heresy

A group of California Senators, most from small towns and rural areas, see their budget fight in near-sacred terms. They're energized -- intimidated, some say -- by talk radio hosts and bloggers.

By Michael Rothfeld and Eric Bailey

8:48 PM PST, February 18, 2009

Reporting from Sacramento — He started out as a champion of their ideals, the leader of a group of conservative Republican state senators devoted to cutting the size of government and blocking tax increases for their rural and suburban constituents.

But over time, state Sen. Dave Cogdill came to see the crisis facing California as bigger than his own closely held views. Then late Tuesday, two former allies walked into his office to deliver the news that his reign was over.

"I don't want to raise taxes, either," Cogdill, a Modesto businessman turned lawmaker, said Wednesday. "It was the hardest decision of my political career, and probably the one that ended it.

"But nonetheless, you know, we're sent here to do a job," he said, "and you don't control the situation. You just have to react to it, stand up for what you believe and make the right decisions."

With the state government and its elected leadership near paralysis, a small group of Republican senators has successfully stymied efforts by Democrats, fellow Republicans in the Assembly and Gov. Arnold Schwarzenegger to plug the state's giant deficit with a plan that includes $14.4 billion in taxes, along with deep program cuts and limits on future spending.

Their near-sacred opposition to taxes ran headlong into a deficit so large that even some within their ranks say it cannot be dealt with by trimming fat from government alone. Still, these true believers have refused to submit, energized -- and intimidated, some say -- by national conservative figures, local talk radio hosts and bloggers.

In this crisis, some senators and their supporters see an opportunity to spotlight a bloated bureaucracy, to make changes to contracting and employment laws that benefit unions and to address other pet peeves that cost the public money.

"That 'chicken in every pot' philosophy is a load of crap,' " a reader, Gregg Palmer, wrote on a conservative blog in response to a note from Cogdill shortly after his late-night ouster. "If the state need(s) to close its doors for a few weeks, so be it. We'll be better off.

"Stand firm," he urged those lawmakers holding out against tax hikes.

Schwarzenegger praised Cogdill on Wednesday for his stand, calling him a man "of great character and a man that you can really trust 100%."

"He did what was right for the people," the governor said. "Maybe not what was right for politics."

Republicans hold only 15 of the state Senate's 40 seats. But they wield significant influence, because two-thirds of lawmakers are need to approve state budgets, and that requires some GOP votes.

The senators tend to hail from the smaller cities and towns of California, where farming and industry drive the economy, cities are often viewed as sinkholes for state tax dollars, and regulations such as environmental restrictions are seen as an impediment to success.

The GOP senators' new leader, Dennis Hollingsworth of Murrieta, was born and raised on a Riverside County dairy farm in a town of 6,000 residents; he worked early on selling frozen bull semen to dairymen and later as a representative for an association of farmers and ranchers.

Hollingsworth, state chairman of a national group that advocates for smaller government, said Wednesday that he would never deviate from his principles. He recalled that four Republican assemblymen who voted for a tax increase in 2001 lost their next election or decided to not to run again.

"It's not as though there are party leaders who are taking actions against members like that," Hollingsworth said. "It's that the people decide that a Republican who raises taxes doesn't usually represent their interests."

Those who defy party orthodoxy, Cogdill said, face derision from "some pretty powerful outside voices" who "crank up" when their elected officials come close to making deals with Democrats.

Local politicians fear the conservative radio hosts of the "John & Ken Show" on KFI-AM (640). And Jon Fleischman, an influential Orange County blogger who publishes "The Flash Report" online, suggested in an interview that Hollingsworth could "buy some time" before new taxes are approved because Democrats might enact deeper cuts "the more dire circumstances become."

"I sure hope he goes over and talks some sense into Mike Villines," Fleischman said, referring to the Assembly GOP leader who supports the tax increases and recently fended off a coup attempt from his own members.

Much has also been made of the anti-tax pledge circulated by Grover Norquist, president of Americans for Tax Reform in Washington. Most of the Republicans in the Legislature have signed it.

Norquist, reached by telephone, compared California Democrats who are upset that Republicans won't authorize new taxes to "the alcoholic who complains someone won't keep buying them liquor."

Not all Republican senators supported the move to change leaders. Sen. Roy Ashburn of Bakersfield, believed to be leaning toward voting for the new tax package, called it "very unwise" to focus on such issues in the middle of a budget crisis.

"The more important thing would be governing the state of California," Ashburn said.

But for others, including Sen. Sam Aanestad (R-Grass Valley), it is a matter of listening to the "hard-working middle-class people" he represents.

"Just yesterday alone, we had 400 telephone calls," he said. "Overwhelmingly, more than 40 to 1, they were saying, 'Please do not raise our taxes.' "

GOP governors consider turning down stimulus money

Published - Feb 18 2009 07:16PM EST

By MELINDA DESLATTE - Associated Press Writer

A handful of Republican governors are considering turning down some money from the federal stimulus package, a move opponents say puts conservative ideology ahead of the needs of constituents struggling with record foreclosures and soaring unemployment.

Though none has outright rejected the money available for education, health care and infrastructure, the governors of Texas, Mississippi, Louisiana, Alaska, South Carolina and Idaho have all questioned whether the $787 billion bill signed into law this week will even help the economy.

"My concern is there's going to be commitments attached to it that are a mile long," said Texas Gov. Rick Perry, who considered rejecting some of the money but decided Wednesday to accept it. "We need the freedom to pick and choose. And we need the freedom to say 'No thanks.'"

U.S. Rep. James Clyburn, D-S.C., the No. 3 House Democrat, said the governors _ some of whom are said to be eyeing White House bids in 2012 _ are putting their own interests first.

"No community or constituent should be denied recovery assistance due to their governor's political ideology or political aspirations," Clyburn said Wednesday.

In fact, governors who reject some of the stimulus aid may find themselves overridden by their own legislatures because of language Clyburn included in the bill that allows lawmakers to accept the federal money even if their governors object.

He inserted the provision based on the early and vocal opposition to the stimulus plan by South Carolina's Republican governor, Mark Sanford. But it also means governors like Sanford and Louisiana's Bobby Jindal _ a GOP up-and-comer often mentioned as a potential 2012 presidential candidate _ can burnish their conservative credentials, knowing all the while that their legislatures can accept the money anyway.

Jindal said he, like Perry and Mississippi Gov. Haley Barbour, is concerned about strings attached to the money even though his state faces a $1.7 billion budget shortfall next year.

Barbour spokesman Dan Turner, for example, cited concerns that accepting unemployment money from the stimulus package would force states to pay benefits to people who wouldn't meet state requirements to receive them.

In Idaho, Gov. C.L. "Butch" Otter said he wasn't interested in stimulus money that would expand programs and boost the state's costs in future years when the federal dollars disappear _ a worry also cited by Jindal and Alaska Gov. Sarah Palin.

A spokesman said Sanford, the new head of the Republican Governors Association, is looking at the stimulus bill to figure out how much of it he can control.

"We're going through a 1,200-page bill to determine what our options are," Spokesman Joel Sawyer said. "From there, we'll make decisions."

But state Democratic Party chairwoman Carol Fowler says Sanford's hesitation is driven by his political ambition rather than the best interests of a state that had the nation's third-highest unemployment rate in December.

"He's so ideological," Fowler said. "He would rather South Carolina do without jobs than take that money, and I think he's looking for a way not to take it."

Not all Republican governors are reticent about using the federal cash.

Florida Gov. Charlie Crist lobbied for the stimulus plan and Georgia Gov. Sonny Perdue has embraced it as he looks to close a $2.6 billion deficit in the state's budget this year. Alabama Gov. Bob Riley has already figured the money into his state's budget.

Pearson Cross, a political scientist at the University of Louisiana at Lafayette, said fiscally conservative governors may be able to give themselves political cover by turning down small portions of the stimulus money, like health care dollars requiring a state match, that they might not fully use anyway.

But in the end, he said, they will likely take most of the available money because their states need it so badly.

"Ideology usually takes second place for governors," he said. "And that's going to mean that most governors are going to go ahead and take the money even though they have misgivings about it."