Capitol Alert

Charles Reed, chancellor of the California State University System for the past 14 years, announced Thursday that he's retiring as it and other state-supported higher education institutions cope with severe budget cuts.

Reed, who came to California after 13 years as chancellor of Florida's state university system, didn't cite money woes as the reason for retiring, but did allude to them in his announcement.

"Our campuses have continued to flourish even in the face of budgetary challenges and tremendous growth, he said. "Throughout my time here, the CSU has grown by more than 100,000 students, and I have been honored to sign more than a million diplomas. I take great pride in the CSU's mission to serve California's students, and I am proud to have played a role in carrying out that mission during these critical years."

As state aid has dwindled in recent years, CSU, the University of California and the state's community colleges have reduced class offerings and raised fees. CSU has been hammered in recent weeks by controversy over raising the salaries of top administrators while increasing students' costs.

Photo Credit: Charles Reed in 2009. Hector Amezcua/The Sacramento Bee

The state's fiscal analyst has explained one way lawmakers could avoid Gov. Jerry Brown's deepest cuts, but the Legislature's top education finance aide said today that solution is unconstitutional.

Rick Simpson, the Assembly's education finance guru, said he believes Brown accurately calculated how much the state owes K-12 schools and community colleges at $53.7 billion in 2012-13. The nonpartisan Legislative Analyst's Office contends that Brown overestimated that amount by $1.7 billion.

Simpson said he wrote the language in the 2009 budget bill spelling out the formula by which the state must pay schools in years when revenues grow faster than inflation and attendance. "The governor is following what the law says," Simpson said today.

He added that he believes the law merely confirms what voters placed in the constitution with Proposition 98 and Proposition 111.

But the Analyst's Office says that interpretation leads to "irrational outcomes" - such as when Brown announced last week that California owes schools more money despite revenues being lower than expected.

The outcome of the disagreement will likely affect how other programs are treated in the budget and how voters view Brown's push for tax increases in November.

LAO education analyst Edgar Cabral reiterated today, "We think our interpretation is the correct interpretation." Even if the 2009 bill spells out a different formula, Cabral noted that it can be reversed through new legislation and does not reflect what his office believes is in the constitution.

The state's top fiscal analyst said today that it "makes sense" for California to help bridge its $15.7 billion deficit with mortgage settlement money, and that the state should be even more aggressive by using more money upfront than Gov. Jerry Brown proposed.

The state will directly receive about $411 million from a multi-state settlement with five banks over their foreclosure practices. Brown has proposed using $292 million of that to solve the current deficit, saving $118 million for the following year, but the nonpartisan Legislative Analyst's Office recommended today that lawmakers use all $411 million of it now.

Brown has proposed using funds to retire a share of housing bond debt and pay for costs in Department of Justice and Department of Fair Employment and Housing programs.

The Analyst's Office said there may be legal risks involved because some money would pay for investigating organized crime, gangs and drug trafficking - none of which are related to the mortgage crisis. But the Analyst's Office believes "the magnitude of the additional budget year savings justifies any legal risk associated with offsetting General Fund costs less directly related to the settlement."

It was a bizarre component of Gov. Jerry Brown's latest budget - despite fewer revenues than expected in January, the governor said the state actually owes more to schools under its complicated funding formula.

The nonpartisan Legislative Analyst's Office says it may be wrong, not bizarre.

One of the key criticisms in the Analyst's review last week was that Brown had overstated how much money the state owes to schools by nearly $2 billion. In a presentation to school officials this weekend, the Analyst's Office said it has "serious concerns" with how the governor treated school funding and that his interpretation leads to "irrational outcomes" of the sort that results in more money to schools despite less revenue.

The outcome of the disagreement will likely affect how other programs are treated in the budget and how voters view Brown's push for tax increases in November.

Legislative Analyst Mac Taylor discussed his office's review of Gov. Jerry Brown's revised budget Friday, suggesting the deficit is higher than the $15. 7 billion Brown projected.

Taylor said that Brown's budget expenditure estimates were "reasonable," but there are risks in other areas of his proposal.

He added that there was no need to build the reserve at the moment.

Taylor also said that outside factors contributed to the deficit, such as California being turned down by the federal government on Medi-Cal reductions.

California's budget deficit is likely worse than Gov. Jerry Brown's estimate of $15.7 billion, the state's top fiscal analyst indicated Friday.

Brown proposed a $91.4 billion general fund budget Monday that slashes health and welfare programs, courts and state worker pay. His proposal also relies on voters temporarily raising taxes on sales and wealthy earners to help cover this year's budget gap and deficits in future years.

The nonpartisan Legislative Analyst's Office said Friday that Brown's revenue forecast is "reasonable," though the Analyst's own projection is still $550 million below the governor's through June 2013. On top of that, the LAO warned that Brown's estimate of money available from former redevelopment programs could be overstated by $900 million.

Based on those initial judgments, the Analyst's Office seems to suggest the state deficit is north of $17 billion rather than $15.7 billion, which was Brown's estimate. But the Analyst's Office didn't provide an exact deficit figure and simply says that the budget problem is "likely somewhat larger" than Brown has estimated.

The Analyst's Office estimates that the state now has an accumulated deficit of $7.6 billion -- meaning a hole that exists because the state failed to balance budgets in the past -- as well as a structural imbalance of roughly $10 billion between revenues and expenditures annually. It believes that the governor's mix of onetime solutions to solve the accumulated deficit is fine, but that the state also needs permanent cuts or revenues to truly solve the gap.

Post updated to clarify that the Analyst's Office is not providing an exact deficit estimate.

California's judicial civil war -- judge against judge over money and power -- has been rekindled by Gov. Jerry Brown's revised state budget.

Chief Justice Tani Cantil-Sakauye convened a special meeting of the state Judicial Council in Sacramento today to discuss Brown's proposed cuts in state support for the courts. Right off the bat, a member of the rebel Alliance of California Judges berated the body for cutting money for trial courts while maintaining a bloated judicial bureaucracy in San Francisco and wasting money on a now-abandoned statewide computer system.

Sacramento Superior Court Judge Steve White delivered the broadside, pointing out that he and his colleagues had warned of continued cuts in state funding and complained that the judicial leadership -- Cantil-Sakauye and her predecessor, Ron George -- had ignored them.

"We were right," White told members of the council. "The time has come to stop and change that."

Against Gov. Jerry Brown's wishes, the California Public Employees' Retirement System board voted today to phase in a higher cost to the state over two years rather than bill the state immediately in full.

In a letter to the board, Brown called that "not a prudent decision."

The disagreement was over the pace at which PERS is lowering its assumptions about future investment returns from 7.75 percent to 7.5 percent, called the discount rate. Such changes are intended to compensate for lower market returns. When the rate of return assumption goes down, governments must contribute more.

The PERS board agreed to phase in the change over two years at a onetime $137 million savings ($78 million general fund), but Brown had wanted the board to drop the discount rate immediately. In a letter he sent to the board today, Brown reasoned that despite the onetime savings, the delay would actually cost the state general fund $145.9 million over 20 years in higher interest costs.

Senate President Pro Tem Darrell Steinberg today repeated a pledge to look for budget solutions that would allow lawmakers to preserve some services targeted with steep cuts under Gov. Jerry Brown's revised budget plan.

"I said on Monday, I'm not looking for a public fight here," the Sacramento Democrat said this morning. "We're looking to work collaboratively and yet not be afraid to have our differences or air our differences with the other stakeholders, the other parties, but come to a resolution where we can in fact buy out some of the worst cuts."

The revised budget proposal released by the Democratic governor Monday calls for roughly $8 billion in cuts to close a projected deficit that has grown to $15.7 billion since his January budget was unveiled. Those cuts include reductions to health and welfare programs and Cal Grants for low-income students.

Steinberg said he doesn't like many aspects of the proposal, including using money won in the mortgage settlement with major banks and reducing funding for the courts, but added that cuts with the most severe effect on the state's neediest constituencies will be the first to come off the chopping block.

"To me a cut that, you know, will result in the difference between life and death and a cut that will increase homelessness by definition, it's our obligation it seems that we do everything we can to avoid those cuts," he said.

Steinberg again floated the idea of using the state's planned $1.05 billion reserve to plug some of the cuts. Ratings agency Standard & Poor's warned lawmakers against that approach Tuesday, writing that the reserve "is low but important considering that the potential Facebook initial public offering-related income tax revenue is especially difficult to forecast."

"I respect the rating agencies, but the rating agencies don't represent a hungry kid who can't do well in school because his family has suffered a big cut in his CalWORKs grant," Steinberg said, referring to the state's welfare-to-work program.

He declined to specify other routes that majority Democrats may take to balance the budget without making all of the cuts proposed by Brown.

Here's a video of Steinberg's previous comments on Monday on how he views the cuts and how he hopes to plug the deficit:

As Standard & Poor's urged lawmakers Tuesday to pursue "credible" budget solutions to bridge the state's $16 billion deficit, the ratings agency did not approve of Senate leader Darrell Steinberg's idea to forego a reserve this year.

In the report, S&P suggested it could lower the state's ratings outlook or even impose a downgrade if lawmakers and Gov. Jerry Brown don't pursue real solutions that bolster the state's cash situation this summer. The state still has a "positive" outlook but an A- credit rating, which rates lowest in the nation.

Brown built a $1.05 billion reserve into his $91.4 billion general fund budget for 2012-13. Steinberg said yesterday that one idea was to use that money instead on public programs.

"Look at the size of the reserve," Steinberg said. "You build up a reserve during good times and during the most difficult times, you don't want the resources sitting necessarily in the bank, you want to use it on mitigating the impact on people in the economy."

"It's raining," observed Sen. Mark Leno, D-San Francisco, a reference to the reserve nickname of "rainy-day fund."

But S&P said today, "In our view, this reserve level is low but important considering that the potential Facebook initial public offering-related income tax revenue is especially difficult to forecast."

Gov. Jerry Brown has weathered criticism for making an aggressive bet on revenues in last year's budget act, but the state's top fiscal analyst approves of his latest forecast, which is more conservative.

The nonpartisan Legislative Analyst's Office said today that its own forecasts "now are fairly similar to the administration's in both 2011-12 and 2012-13, with just a few hundred million dollars of bottom-line differences each year." LAO forecaster Jason Sisney would not specify whether his estimate is higher or lower than the governor's, only that they are "fairly close, and in the revenue forecasting world, fairly close means a great deal."

That is a significant change after the LAO had disagreed since November with Brown's revenue estimates, saying the governor had been too optimistic in thinking the state would remain flush with capital gains revenue after a hot spring 2011. Several economists and fiscal experts said in today's Bee that last year's optimistic assumption was driven much more by politics than economic data.

Interestingly enough, the scaling back of capital gains forecasts comes on the eve of the highly anticipated Facebook initial public offering slated for Friday morning that will generate billions for California tax coffers. The Analyst's Office said transactions related to the IPO would be responsible for one-fifth of California's economic growth over the next 13 months.

The LAO estimates that California will receive $2.1 billion through June 2013 from the Facebook IPO alone as employees and insiders cash in their stock options. That figure also assumes that voters will pass Brown's tax hike on wealthy earners and sales. The LAO increased its projection after Facebook increased its per share estimate this week.

The LAO assumes the Facebook IPO will start at $38 and that shares will trade at $45 in six months, when a new round of insiders are slated to cash in.

Brown's Department of Finance was more conservative on Facebook, estimating the state would receive $1.9 billion, which includes $400 million if his tax plan passes. Finance assumed a $35 per share IPO and a $35 per share price after six months.

Finance spokesman H.D. Palmer said the department had even calculated the state's tax benefit from Facebook CEO Mark Zuckerberg's initial transaction alone. California is slated to receive $195 million this month when Zuckerberg exercises his option on 60 million shares, Palmer said.

PHOTO CREDIT: In this Feb. 5, 2007 file photo, Facebook CEO Mark Zuckerberg smiles in this office in Palo Alto, Calif. AP Photo/Paul Sakuma, File

The reaction to Gov. Jerry brown's budget plan is rolling in. Here's a sampling from prepared releases:

Sen. Mark Leno, D-San Francisco and chair of the Senate Budget Committee:

"We've made significant progress in reducing the state's structural budget deficit in the past year, shrinking it from $20 billion to $8 billion through austerity measures alone. Unfortunately, our fiscal crisis in California is far from over, largely due to the $20 billion structural deficit left by the Schwarzenegger Administration, and we continue to face a significant budget gap. We have just two ways to fill that hole, cuts and new revenue. While budget cuts are unavoidable at this juncture, they must be done in the most sensitive way to prevent further harm to our economy and essential infrastructures. We cannot continue to expect our state to thrive while we simultaneously give away tax breaks to large corporations and scale back funding for our schools, universities, social programs and health care services that are important to children, lower and middle class families and elderly and disabled Californians. We will not have the resources we need to put California back on its feet without the revenues that the Governor is proposing in his November ballot initiative. I look forward to working together with my colleagues in the Legislature and the people of California to fully analyze this latest budget proposal and present a transparent and balanced plan to the Governor by June 15."

Senate Republican Leader Bob Huff of Diamond Bar:

"Unfortunately, the Governor's increased budget deficit was predictable. Senate Republicans have consistently raised concerns that last year's majority vote budget relied on too many phony spending reductions, other irresponsible revenue assumptions, and gimmicks. As state revenues have been increasing, total spending has also increased by $20 billion since the 2007-08 state budget. Despite an 11% unemployment rate, two million Californians out of work, and California being ranked the worse state in the nation to do business 8-years in a row, the Governor and Democrats have no proposals to help grow the economy or to help our small business community. Republicans believe we must get people back to work, which in turn will responsibly increase our state tax revenues."

California Gov. Jerry Brown released today a revised plan to close the state's projected $15.7 billion budget gap.

Here is the summary of the May budget proposal:

Gov. Jerry Brown's May budget revision summary 2012-2013

RELATED POSTS:

Gov. Jerry Brown: Cut state workers, health and welfare to solve budget

Gov. Jerry Brown: State budget deficit now $16 billion

Legislative Democrats are bracing for "more work on the cuts side" once Gov. Jerry Brown releases his revised budget next week, Senate President Pro Tem Darrell Steinberg told reporters during a weekly q-and-a in his office.

"We all expect the news to be rough. That's no secret," the Sacramento Democrat said.

That will likely mean more steep cuts to the state's health and human services programs. An estimated $1.5 billion lawmakers had hoped to reserve for affordable housing programs is also "certainly a very ripe candidate" for use for general budget relief, he said.

"We have not shied away from doing what we have to do and we won't shy away now," he said. "But we will certainly fight to save more than we lose.'

When asked what areas he hopes to protect from future reductions, Steinberg cited CalWorks, the state's welfare-to-work program, as a top priority. He said studies showing correlation between cuts to those services and homelessness make the decision "one of those can you sleep at night kind of questions."

"I would do just about anything to avoid that cut," he said.

Brown's budget is expected to rely on up to $9 billion in revenues from his proposed initiative to temporarily raise income taxes for top earners and enact a quarter percent increase in the state sales tax, with a round of "trigger" cuts after the election if the November ballot measure fails. While the revenues at stake on the November ballot has grown since the governor's January budget proposal because of changes to the tax plan, Steinberg said he expects the triggers to still target K-12 schools, higher education and the courts.

"I don't see that the fundamentals will change even if the number changes," Steinberg said. "But you've got to make up for a bigger number."

PHOTO CREDIT: Senate President Pro Tem Darrell Steinberg, D-Sacramento, speaks at the Capitol Bureau on Jan. 20, 2011. Hector Amezcua, Sacramento Bee.

Democratic state Sens. Joe Simitian and Noreen Evans today rolled out a proposal aimed at keeping the gates open at more than 50 California state parks set to close this summer.

The proposal, which will be heard by a Senate budget subcommittee Wednesday afternoon, includes shifting as much as $40 million from existing state accounts for road maintenance, septic system repairs and trails and off-highway vehicle funds to cover parks' costs. That money would be used for purposes consistent with the original intent of those funds, Evans and Simitian said.

Other recommendations include facilitating operating agreements with nonprofits, improving entry fee collection efforts and exploring other funding sources, such as license plates and concessions agreements. Some parks would still likely have to close, but supporters said they hoped those would be able to reopen in the future thanks to the plan.

State parks officials announced last year that 70 of the state's more than 270 parks would be targeted for closure due to budget cuts. The closures are projected to save about $22 million. The parks department has been able to form partnerships with nonprofits and local governments to keep 16 of those parks open. Richard Stapler, spokesman for Natural Resources Secretary John Laird, said officials are involved in substantive talks involving about a dozen additional parks.

The California Board of Equalization overstepped five years ago when it voted to tax flavored malt beverages, known popularly as "alcopops," as hard liquor instead of beer, a state appellate court has ruled.

The Sacramento-based 3rd District Court of Appeal, in a decision released Monday, described the bottled drinks, such as Mike's Hard Lemonade and Smirnoff Ice, as "hybrids" of beer and distilled spirits but based its decision on a state agency's classification of them as beer.

The difference in taxation is immense. California taxes beer at 20 cents a gallon but hard liquor at $3.30 per gallon.

Anti-alcohol activists argued that the makers of the drinks marketed them to young people and pressed for the higher taxes to raise prices and discourage sales. The Board of Equalization's three Democrats agreed while its two Republicans voted against the hard liquor classification.

Diageo Guinness USA, which markets Smirnoff brands, and the Flavored Malt Beverage Coalition challenged the Board of Equalization decision in court, noting that an alcopop's alcohol content was similar to beer's, but lost at the trial level before winning the appellate court decision.

"The Legislature did not delegate authority to the board to adopts its own classification of alcoholic beverages," Justice Harry Hull wrote in the 3-0 decision.

Gov. Jerry Brown wants K-12 districts to plan for the next school year as if voters will pass his $9 billion tax hike in November, but the vast majority of them are refusing to do so, according to a new Legislative Analyst's Office survey.

Nearly 90 percent of respondents said they will wait until after November to spend the money. In doing so, districts will likely lay off more teachers and increase class sizes beyond the level that Brown wants heading into the election.

District officials typically budget conservatively, assuming a worst-case scenario. This year, they have a huge uncertainty in not knowing how the November tax initiative will fare, yet they are required to decide how many teachers and staff to lay off before the school year starts.

According to the survey, 36 percent of districts said they would budget this year without the governor's tax hike but plan to spend the money in 2013-14. One-third of districts said they would wait until after November to figure out how to spend the money in the second half of the school year, while one-fifth said they would predetermine an automatic trigger spending plan that kicks in next spring if the taxes pass.

Only 8 percent of districts said they will pursue Brown's preferred path of installing trigger cuts for the second half of the year should the tax hike fail.

Gov. Jerry Brown wants to eliminate the seven-member board that hears appeals on unemployment insurance benefits -- whose members are often termed-out California legislators -- and turn their work over to civil service administrative law judges.

But the Legislature's budget analyst, Mac Taylor, says that eliminating the Unemployment Insurance Appeals Board, whose members are appointed by the governor and legislative leaders, would erode legislative oversight of the appeals process.

Taylor, in a new report to the Legislature, agrees that unemployment insurance appeals should be heard by state administrative judges, but says the board should remain intact, albeit with two fewer members, to oversee the appeals process and set overall policy for benefits. He also recommends that salaries of the remaining five board members be lowered from $128,112 a year to $114,000, the same as the administrative judges, and that members meet the same qualification standards as the judges.

Finally, he suggests that the governor, who now appoints five members of the board, get three appointments while each legislative house continues to have one appointee each. Although the board has seven positions, it has had only five members - three of them former legislators - since last fall.

Brown's proposal and Taylor's alternative will be part of deliberations on a 2012-13 budget.

Ratings agency Standard & Poor's raised concerns today after California income tax revenues fell short in April and a judge ruled the state controller cannot withhold legislative pay based on budget quality.

In its review, the agency said the two developments "could weaken the state's prospects for further improvement in its fiscal structure," though it noted that this outcome is not inevitable.

S&P did not downgrade California's worst-in-the-nation A- credit rating, though it used today's report to suggest the latest developments could threaten the progress the agency has praised in recent months.

California fell nearly $2 billion shy in personal income tax revenues in April, the state's biggest collection month, according to state Controller John Chiang. The Legislative Analyst's Office estimated last week that California is running about $3.5 billion behind Gov. Jerry Brown's forecast for the fiscal year to date in personal and corporate income taxes. The LAO also said the state could also be short by a few billion dollars by June 2013.

A Sacramento Superior Court judge last week ruled in favor of state lawmakers who alleged that Chiang violated the state constitution last summer when he withheld their pay for 12 days for submitting a budget he considered out of balance. Judge David I. Brown ruled that Chiang had overstepped his bounds, and that the Legislature has broad authority to determine for itself when a budget is balanced.

Brown's ruling posed more of a worry for S&P, which stated, "This decision, in our view, may open the door for the Legislature to potentially rely on budget maneuvers that may be politically expedient but fiscally unreliable when devising deficit solutions."

The agency stated further, "We believe that the Steinberg decision, coupled with what we see as reluctance among legislators to make additional difficult spending cuts, increases the risk of a less structurally balanced budget for fiscal 2013."

Update (5 p.m.): The Legislative Analyst's Office revised its April estimates to say that general fund revenues are lagging by about $3 billion for the fiscal year to date, which accounts for a shortfall in income taxes but a slight boost in sales and insurance taxes. The Analyst's Office still says Brown's revenue forecast is likely a "few billion dollars" short through June 2013.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, issued the following statement in response to S&P's comments:

"We know we have a task ahead of us and we are prepared to make the tough decisions required to balance a credible budget on time. The S&P report acknowledges the tremendous progress we have made in tackling the deficit and there is no reason to assume this year will be any different. We are hopeful that this budget coupled with the Governor's tax initiative will help us put an end to the deficit cycle. The court decision upholds the language of the state constitution, reaffirms that a third party has no authority to arbitrarily invalidate a budget and has not fundamentally changed any aspect of the budget process. To imply otherwise is presumptuous."

California voters are inclined to support Gov. Jerry Brown's sales and income tax increase, but by a less than overwhelming margin, a new poll by the Public Policy Institute of California has found.

The PPIC poll of likely voters found 54 percent in favor of Brown's tax measure, for which signatures are now being gathered, and 39 percent opposed. The poll also indicated that a rival measure sponsored by civil rights attorney Molly Munger and the state PTA to raise income taxes on most taxpayers for schools faces an uphill struggle.

Brown has attempted to persuade Munger to drop her initiative, but she's poured millions of dollars into signature-gathering and is likely to turn in signatures soon.

Brown has portrayed his measure as one that would save schools from massive cuts, building on an assumption -- confirmed by the PPIC poll -- that K-12 education is the most popular area of the state budget. But Munger contends that Brown's measure would actually give schools little or no new money.

Overall, the poll found, voters are more than willing to tax high-income Californians, as Brown's measure would do. The poll didn't ask about Munger's plan specifically, but showed nearly three-fifths of voters opposed to raising income taxes on most taxpayers for schools, which her measure would do. They also oppose the sales tax component of Brown's proposal, a quarter-cent increase. That opposition drags down overall support for the governor's approach.

The PPIC poll also found that Brown's approval rating among all adults is 43 percent and among likely voters 47 percent, but support for his handling of public education - -the broad subject of PPIC's polling -- drew approval at just half of those levels. In fact just 23 percent of likely voters like his education policies.

However, Brown is doing much better than the Legislature, which gained the approval of just 15 percent of likely voters in the PPIC poll.

With state revenues slowing to a trickle as the end of April draws near, the state's top fiscal analyst said late Wednesday that California could be "a few billion dollars" shy of Gov. Jerry Brown's budget projections through June 2013.

The nonpartisan Legislative Analyst's Office said total personal income tax collections would likely be more than $2 billion below Brown's expectation of $9.4 billion for the month. Because the state was already running behind, it would mean PIT revenues would be $3 billion shy for the fiscal year compared to Brown's updated January projections.

Corporate taxes are also likely to trail Brown's forecast by about $450 million for the fiscal year so far, according to LAO.

Unless sales taxes are robust, that means the state would be about $3.5 billion behind for this fiscal year, and likely a "few billion dollars" through the budget cycle that ends in June 2013, the Analyst's Office estimates.

Brown pegged the state's deficit at $9.2 billion through that month, and he suggested last week that the problem might be $1 billion or $2 billion worse than previously stated.

In a win for lawmakers, Sacramento Superior Court Judge David I. Brown affirmed his decision today that Controller John Chiang cannot unilaterally block their pay if they submit a budget they consider balanced.

Attorneys for the Legislature and Chiang battled in an hour-long hearing that at one point had the controller's attorney suggesting lawmakers could just write a flimsy state budget on a ham sandwich wrapper and send it to the governor to get their pay.

Most of the hearing featured verbal sparring between Brown and deputy attorney general Ross Moody, who represented the controller. Chiang did not say Wednesday whether he would appeal.

Democratic legislative leaders who sued Chiang contend the controller illegally took control of the budget process when he found their budget out of balance and blocked their pay for 12 days last June.

During the hearing, one of the Legislature's attorneys, Fredric D. Woocher, said of Chiang, "When did he essentially get to appoint himself king?"

Judge Brown was sympathetic. He told Chiang's side, "If your position is correct, nobody is going to want to run for governor anymore. The big race in California is going to be for controller because the controller is going to be the person. He or she will be the top power in the state."

Gov. Jerry Brown said this morning that the Legislature should "man up" and make spending cuts, acknowledging the state budget deficit is likely larger than he previously thought.

The Democratic governor, in an interview on the Bay Area talk radio station KGO 810, said the deficit is "probably bigger now" than the $9.2 billion he estimated earlier this year.

"We're trying to be as prudent as we can," Brown said. "That's why the Legislature has to man up, make the cuts, and get some taxes and we'll make it."

Legislative Democrats have resisted many of Brown's proposals to reduce spending, and his demand that cuts be enacted by March fell flat.

Brown's "man up" remark was reminiscent of when Republican Gov. Arnold Schwarzenegger called legislative Democrats "girlie men" in 2004, also in a budget dispute.

"Uh-oh ..." Aaron McLear, Schwarzenegger's former press secretary, said on Twitter, "sounds a lot like 'Girly Men.'"

As state leaders hope for a surprise uptick in revenues this spring, state Controller John Chiang reported Tuesday that California lagged last month by $233.5 million, or 4.2 percent.

The state missed its target most in corporate income taxes, which were $125.8 million (8.2 percent) off the mark. Income taxes and sales taxes were each less than 2 percent behind Gov. Jerry Brown's revenue forecast.

For the fiscal year that ends in June, the state is now trailing Brown's expectations by nearly $1.1 billion, or 1.9 percent.

"While revenues continue to fall short, the months ahead will be far more important to the State's finances," Chiang said in a release. "More than 35 percent of all revenues are expected in the next three months, making this the most important period for tax collection in the fiscal year."

Because April is such a telling month for state budgeting, Chiang has a daily revenue tracker on his website. Through Friday, the state had cleared $923 million. Brown's budget is counting on $9.132 billion for the month.

Lawmakers are delaying significant actions on the budget until Brown issues his May budget revision, which takes into account April revenues. Brown is circulating a new tax initiative with larger increases on sales and wealthy earners than his initial proposal in part to give lawmakers a bigger buffer against the possibility of disappointing spring tax revenues.

California state officials sued Orange County today to recoup $73.5 million in property taxes, the latest development in a feud stemming from last year's state budget.

Since its 1994 bankruptcy, Orange County received an enhanced share of state car taxes to help regain its financial footing, the Department of Finance contends. But last year, Gov. Jerry Brown and lawmakers agreed to redirect that share -- $48 million -- to pay counties for new responsibilities they assumed from the state, such as housing low-level prisoners and overseeing parolees.

Orange County lawmakers attempted with little success last summer to have the state restore the car tax money before the end of session. In its place, Orange County has withheld property taxes this year that normally pay for K-12 schools and community colleges - money that the county believes is rightfully its own.

Orange County spokesman Howard Sutter disputes the state's characterization of the car tax history. While some money was dedicated to repaying bankruptcy debt, Sutter contends that did not result in the county receiving more than it was due under state tax formulas.

The state Department of Finance along with California Community Colleges Chancellor Jack Scott filed suit Thursday in Orange County Superior Court, alleging that the county has taken "the extraordinary step of flouting the law and illegally redirecting property tax revenue payments from schools and community colleges to the county's own general fund." The state wants the court to order the county to pay property taxes to schools.

Sutter issued the following in a statement: "While the county has been proactive in discussing this issue with legislators and school officials, the Department of Finance and Attorney General's office have made no contact with the county regarding this matter. The county is disappointed the state has now resorted to filing a lawsuit. We are evaluating the merits of their suit and cannot comment on its specifics at this time until we have had time to completely review their claims."

Gov. Jerry Brown's Department of Finance responded late this afternoon with a line-by-line retort to the budget proposal that California Republican legislators unveiled this morning.

"A number of these proposals have been overstated in value or blocked by the courts," said Finance spokesman H.D. Palmer.

Among the highlights:

• Finance believes the plan to take $1.3 billion in mental health funds and $131 million in First 5 money would be illegal. It also believes cuts to In-Home Supportive Services and prisons face legal hurdles. Republicans respond that Democrats pursued similar measures in the past. Some legally questionable moves survived because Democrats convinced groups not to sue; Republicans say they believe the same moves can occur again.

• Finance says the $400 million in state worker savings could not be reached by reducing operating expenses. The Republican plan suggested the reduction could also occur through a once-monthly furlough or 4.6 percent pay cut.

• Finance says the state could benefit by $520 million to $880 million by eliminating the funds for affordable housing, lower than the $1 billion that Republicans are counting on.

• Finance says that savings from inmate pharmaceutical costs and revenues from selling ad space on highway electronic signs are overstated. Republicans say they have leeway because they are not counting revenues from Facebook's public stock sale.

Updated with Republican responses.

Geena Davis has a new leading role to add to her resume.

The Academy Award-winning actress has been elected to chair the California Commission on the Status of Women. The leadership decision was announced at an event at Mount St. Mary's College held to unveil a new report by the agency, which promotes equality and justice and advises lawmakers on issues that affect the state's female population.

"I am honored to lead the critical work of the Commission to improve the lives of all women and girls in California," Davis said in a statement announcing her new post. "It's not just an issue of gender equality; it's also an economic issue. Addressing inequalities is good not only for women, but also for California as a whole."

Davis, who founded the Geena Davis Institute on Gender in Media, was appointed to the commission by fellow film star and then-Gov. Arnold Schwarzenegger in 2010. Her new lead could be short lived, however. Gov. Jerry Brown called for eliminating the nonpartisan agency in his 2012-2013 budget proposal. His office says the move would save the state an estimated $270,000.

PHOTO CREDIT: Geena Davis in 2005 Associated Press/ Kathy Willens)

Senate President Pro Tem Darrell Steinberg said Thursday he considers the Republican budget plan a "rehash" that is legally questionable and would not solve California's fundamental budget problems.

Gov. Jerry Brown and legislative Democrats have gone all-in on their multibillion-dollar November tax initiative, which they say will spare the state from deep education cuts this year and from deficit problems in the future.

Republicans issued their own budget plan Thursday to refute that argument, saying that Democrats do not need higher taxes to fully fund schools and that a growing economy and spending restraint will rescue the state in the coming years.

Legislative Republicans rolled out a budget plan Thursday that relies on cutting state worker pay, eliminating affordable housing funds and using pots of money dedicated for mental health and childhood development.

Republicans believe their plan eliminates the state's $9.2 billion deficit without new taxes and preserves the same amount of funding for education that existed last year. They say it undercuts Gov. Jerry Brown's argument that voters must pass higher taxes in November to spare schools from deep reductions.

"The state budget is a reflection of priorities and there is no reason to hold our schools hostage to the uncertainties of the proposed tax increase initiative that may not benefit our students," GOP legislative and budget leaders wrote in a joint letter. "With political will, we can work together in a bipartisan manner to ensure that our schools are protected from trigger cuts, whether the Governor's tax initiative is ultimately accepted or rejected by the voters."

Democrats have all but written off Republicans in this year's budget process because they have majority-vote budget authority and are going directly to voters for a tax hike on sales and upper-income earners. Brown has said that if voters reject the tax hike, the state will need to cut about $2.4 billion in K-14 classroom funds, equal to three weeks of school, as well as cut $200 million each from the state's university systems.

Capping years of sometimes bitter controversy inside and outside the judicial system, the state Judicial Council voted Tuesday to halt deployment of what was to be a computerized case management system linking every California court in paperless operation.

The California Case Management System (CCMS) was the brainchild of former Chief Justice Ron George and more than a half-billion dollars has been spent so far, mostly on private consultants and vendors. But it's come under increasingly sharp criticism by some judges, through the Alliance of California Judges, in the Legislature and by the state auditor.

The auditor had questioned how the money had been spent and an Assembly budget subcommittee voted recently to cut off funds for CMSS deployment.

The Alliance of California Judges, which said that the money had been squandered on an unworkable system while courts were being forced to close the doors due to sharp cuts in state court funds, was the big winner in Tuesday's action.

In a court battle that could shape how schools are funded, a judge tentatively ruled Tuesday that California lawmakers can reduce education funding by diverting state revenues into new pots of money.

School boards and administrators sued the state last fall alleging that Gov. Jerry Brown and lawmakers had shortchanged schools by shifting about $5 billion in sales tax revenues to counties in a new realignment fund.

Under voter-approved Proposition 98, the state is required to devote a specified share of overall general fund revenues to K-12 schools and community colleges. School officials said that by diverting $5 billion in sales taxes, the state avoided sending $2 billion it owed to education last year under the constitution.

In recent years, recalculating Proposition 98 has become a popular solution to balancing the budget in the final days -- as long as the powerful school lobby signs off. Last year, the California Teachers Association agreed to the shift after winning concessions that protected jobs. But school administrators were upset because they said the budget had tied their hands in terms of midyear layoffs or furloughs while cutting $2 billion in the process.

San Francisco Superior Court Judge Harold Kahn issued a preliminary ruling today indicating that he believes the state has the power to create new special funds, and that none of those dollars have to be devoted to schools under Proposition 98.

As the nation's economy recovered, albeit slowly, from recession last year, most states saw a surge of revenues - but not California, a new Census Bureau data dump indicates.

Nationally, state government revenues rose 3.5 percent to $183.8 billion during the fourth quarter of 2011 over the same period of 2010, the Census Bureau report said, but in California, they dropped 8.2 percent to $25.6 billion.

But there may be less import than those numbers would indicate. Temporary income and sales tax increases enacted by the Legislature in 2009 were still in effect in 2010, but had expired by late last year, which largely explains the sharp declines in revenues from those two sources.

Fourth-quarter California income tax revenues last year were $11.3 billion, the Census Bureau report said, down from $12.2 billion in 2010, while sales taxes dropped from $8.1 billion to $7.5 billion.

Gov. Jerry Brown tried to get the temporary taxes extended, but Republican legislators refused to support his plan. He's now pushing a November ballot measure that would raise sales taxes by a quarter-cent and sharply boost income taxes on high-income Californians. He says it would raise about $9 billion a year but the Legislature's budget analyst says that number is likely too high.

The Senate Education Committee Wednesday rejected legislation that would have curbed pay increases for college administrators, just a day after trustees of the California State University System gave 10 percent boosts to two university presidents.

Sen. Leland Yee (right), D-San Francisco, argued that his measure, Senate Bill 967, was needed to send a message to trustees that hefty raises are inappropriate while student fees are being increased and enrollment is being curtailed.

But just four members of the Democrat-controlled committee, two short of a majority, voted for Yee's measure and three voted against it.

The bill would prohibit trustees from increasing any monetary compensation of an university executive officer for two years if fees were rising or state appropriations for the system were being reduced. It also would cap the salary increase for any new executive at 5 percent of that paid to his or her predecessor. And it would ask University of California regents to abide by the same rules, although the UC system is constitutionally independent.

On Tuesday, CSU trustees, meeting at the system's headquarters in Long Beach, approved raises for the presidents of CSU East Bay and CSU Fullerton, despite complaints from students and faculty members and public criticism by Gov. Jerry Brown. The 10 percent increases were the maximum allowed under a board policy.

A university official conceded to the Senate committee Wednesday that the raises were "bad optics...bad juju" in light of budget cuts and enrollment restrictions. Critics of the bill said it would set a bad precedent of micromanaging university affairs.

""It is another sad day for our students," Yee said in a statement after the committee action. "Unfortunately, the Education Committee has sent the completely wrong message. Rather than stand up for students and faculty, they protected the 1 percent and condoned CSU's bad behavior. CSU students and California taxpayers deserve better than the status quo."

In-Home Supportive Services (IHSS) has been one of the state's fastest growing programs during the last decade, and both Democratic Gov. Jerry Brown and his Republican predecessor, Arnold Schwarzenegger, have tried to rein in costs, only to collide with political and legal roadblocks.

The multi-billion-dollar program is financed by federal, state and local governments and serves hundreds of thousands of the elderly and disabled with only slightly fewer caregivers. The latter are technically local government employees and are represented, in the main, by the aggressive Service Employees International Union (SEIU). The union has fought reductions in the Legislature, in the courts, in Washington and in the streets with demonstrations, picket lines and other tools.

Brown is trying to reduce IHSS costs again in his 2012-13 budget, proposing a series of eligibility and direct cost changes that would, he says, cut spending by 5 percent to $5.3 billion, of which $1.2 billion would come from the state's general fund budget. If implemented, his budget says, the number of recipients would drop 2.5 percent to an average of 422,993.

The proposals include a 20 percent across-the-board reduction in the hours of caregivers, even though a federal judge has already blocked that approach. Brown also wants to move IHSS into managed-care and eliminate IHSS benefits for recipients who reside with their families or other persons.

However, the Legislature's budget analyst, Mac Taylor, is leery of the administration proposals and is suggesting other ways of saving money in a new report.

"We find that the governor's proposal for budget-year savings - the elimination of domestic and related care services for most IHSS recipients who live with other people - raises significant policy and legal concerns," Taylor told the Legislature Monday. "We therefore offer the Legislature two savings alternatives--the extension of the 3.6 percent across-the-board reduction in hours and the reenactment of the reduction in state participation in provider wages - to achieve some general fund savings in the budget year. We think that our alternatives pose less legal risks and implementation challenges than the governor's proposal to achieve budget-year savings."

Two days after Gov. Jerry Brown announced a compromise ballot measure to raise taxes, California's top budget analyst said today that the measure will generate $2.2 billion less next year than Brown has estimated.

The nonpartisan Legislative Analyst's Office estimated in its review of the measure that the tax increase would generate $6.8 billion in fiscal 2012-13. Brown had estimated raising some $9 billion.

The tax initiative, a compromise Wednesday between the Democratic governor and the California Federation of Teachers, would increase the state sales tax less than Brown originally proposed, but include a larger tax increase on California's highest earners. The state Department of Finance has estimated that the revised plan would raise about $2 billion more through June 2013 than Brown's initial plan.

The LAO's analysis is in line with its review of Brown's first tax plan, in which it also estimated lower revenues than Brown did. Finance spokesman H.D. Palmer attributed the difference to the agencies' different revenue forecasts, with the administration anticipating higher revenue from capital gains.

An Assembly budget subcommittee voted unanimously Wednesday to block expansion of a statewide court case management system that has become the focal point of a months-long political war between the state's judicial leadership and some rebel judges.

The latter -- backed by the politically powerful Service Employees International Union -- have complained that millions of dollars are being wasted on the computer system while local courts are being compelled to curtail their operations and lay off employees as state financing of courts is reduced.

The budget subcommittee's action bolsters the Assembly's position in a conflict with the state Senate over court management. The Assembly has passed legislation, Assembly Bill 1208, that the rebel Alliance of California Judges sponsored to give local judges more power over distribution of operational funds.

Chief Justice Tani Cantil-Sakauye, who chairs the state Judicial Council and heads the Administrative Office of the Courts, has publicly complained that the legislation violates judicial independence, and Senate President Pro Tem Darrell Steinberg has declared that the bill will be held in his house without a vote.

Steinberg, however, is under pressure from the SEIU, which represents court employees facing layoffs and is a major source of campaign money for Democrats. Wednesday's action makes the computer system financing a potential bargaining chip in the inter-Capitol maneuvering over the legislation.

The subcommittee's action came after the Legislature's budget analyst and the state auditor delivered reports that strengthened the critics' positions.

So far, legislators were told, the Administrative Office of the Courts has spent $556.5 million on the system but it's been deployed in only a few counties. Even so, Auditor Elaine Howle pointed out, the AOC certified that the system is complete, thereby triggering a limited warranty period from the contractor that could leave the state holding the financial bag if problems crop up later.

Judges themselves are divided over the efficacy of the system, some professing that it lightens their workloads, while others saying it is unusable. In recent weeks, the chief justice and her allies have backed off their previous intent to install it in every county and indicated that they'd give local judges more leeway.

If lawmakers won't make nearly $1 billion in cuts to California's welfare-to-work program, Gov. Jerry Brown said today, he'll find somewhere else to cut, promising a balanced budget.

"It's very simple. This is arithmetic, and it's really, I would call it seventh grade arithmetic," Brown said today, after an Assembly budget panel rejected his proposed CalWORKs cuts last month. "If you don't want to cut what I propose, find something else, and then show it. But we're going to have a balanced budget. That you can take to the bank."

The Democratic governor's remarks followed a speech to the California Police Chiefs Association in Sacramento. Brown, who is proposing tax increases and spending reductions to balance a budget deficit he estimates at $9.2 billion, said he is looking for more money for law enforcement, but he urged patience.

"You cops know what it is to deal with a tough neighborhood, OK?" Brown said. "I'm working in a tough neighborhood."

Brown told reporters that the spending plan he signs this year will "have its pain," but that the economy will improve in future years.

"I'm promising wine and roses," he said, "but not in 2012."

The state is losing an estimated $10 billion a year in revenue due to the underground economy, non-filing of tax returns, overstatement of deductions and other forms of tax evasion, a new study by the Franchise Tax Board staff estimates.

That's nearly twice as much as what Gov. Jerry Brown hopes to realize from his tax increase ballot measure.

Scott Reid, the state tax agency's research director, told the board this month that the estimate, which is up from $6.5 billion seven years ago, is extrapolated from an extensive study by the federal Internal Revenue Service.

Reid gave the board one example of how the state's "tax gap" emerges: A taxpayer who donates to charity a slightly used suit of clothes that originally cost $300 and values it at $75 for a tax deduction, only to see the suit actually listed for sale at $10.

The war over tax increase ballot measures escalated Friday when sponsors of the so-called "millionaires' tax" denounced the Business Roundtable for its opposition.

Terming it "us vs. Goliath," the Courage Campaign, a co-sponsor of the measure that would raise income taxes on Californians with $1 million-plus incomes, accused the corporate leaders of the Business Roundtable of protecting their own wallets.

"Of course the CEOs of corporations like Chevron, Bank of America, Wells Fargo and PG&E would oppose the Millionaires' Tax of 2012 through their umbrella organization, the California Business Roundtable," said Rick Jacobs, founder of the Courage Campaign.

The Courage Campaign, the California Federation of Teachers and the California Nurses Association are sponsoring the initiative measure, one of three major tax proposals that may be headed for the November ballot.

Earlier this week, the Business Roundtable declared opposition to the millionaires' tax measure, which would boost financing for education and social services, and another income tax measure sponsored by civil rights attorney Molly Munger and the California PTA, whose proceeds would go to schools.

The business group did not, however, oppose Gov. Jerry Brown's measure that would raise sales and income taxes to balance the state budget, saying that it wanted to see whether Brown and the Legislature would enact pension reforms and business climate improvements before taking a position.

Brown has been trying to persuade sponsors of the other measures to pull back, saying that if all three are on the ballot, voters will be confused and likely reject all three. He's particularly concerned about the millionaires' tax, which fares the best among voters in recent statewide surveys, saying that it would do little to close the state's budget deficit.

Jacobs' sharp retort to the Business Roundtable indicates, however, that he and other sponsors of are not backing down, despite Brown's private and public pleas.

"Game on," says an "action report" that Courage Campaign sent to its members, denouncing the Business Roundtable's stance.
.

Today's lead item in The Bee's Buzz column gave a snippet of the legal wrestling going on in Controller John Chiang's battle with fellow Democrats in the Legislature over his move to withhold their pay during last year's budget debate.

Chiang says he was within his rights to withhold the pay, particularly because Gov. Jerry Brown vetoed the budget. Democrats say he was merely being "politically expedient" and overstepped his bounds, especially because SCO officials had recently acknowledged they had no expertise in evaluating the viability of the state budget.

The court showdown comes April 10. But the most recent filings lay out the arguments from both sides. Here's the filing Attorney General Kamala Harris made on Chiang's behalf:

Chiangfiling

Here are the points and authorities from legislative leaders:

Leg is Filing

Tom Torlakson, the state superintendent of schools, said Thursday that while he supports Gov. Jerry Brown's tax increase ballot measure, he considers Brown is being "blatantly unfair" to schools in targeting them for spending cuts should voters reject new taxes.

Brown holds school financing level in his proposed 2012-13 budget, which assumes passage of his package of sales and income tax increases, but would whack the schools by more than $4 billion if voters reject the package via automatic "triggers."

The either-or nature of the budget is seen in political circles as a way of selling the tax package because schools, polls say, are the single most popular areas of government spending. But it still must be enacted by the Legislature, which is already balking at many of Brown's budget proposals.

Torlakson's criticism of the school spending triggers was just one of several aspects of Brown's budget that drew criticism from the schools chief in an appearance before a state Senate budget subcommittee.

He said he agrees with Brown that a first priority should be to beginning pay down the state's multi-billion-dollar debt to schools from aid deferrals. And he likes Brown's notion of recasting school finance to put more emphasis on schools and students who are performing poorly.

But Torlakson was critical of Brown's plans to move away from academic testing and flatly opposed the governor's proposals to overhaul child care, calling them "misguided" because they would neglect early childhood development while reducing state support.

Boating clubs throughout the state are organizing opposition to Gov. Jerry Brown's proposal to fold the Department of Boating and Waterways into the Department of Parks and Recreation.

Recreational Boaters of California and its member clubs contend that merger would divert fees and taxes collected from boaters into non-boating activities.

The Legislature's budget analyst added more fuel to the controversy Wednesday when it suggested that the department's programs of loans to public and private marina and launching ramp developers be eliminated to save money.

"In 2012-13, proposed expenditures for these programs total $13.8 million from the Harbors and Watercraft Revolving Fund (HWRF)," the Legislative Analyst's Office told the Legislature in a report. "We recommend that the Legislature consider whether these loan programs continue to be a state funding priority. Eliminating these programs would leave the lending function to the private sector.

"We note that the budgetary savings from the elimination of these programs would gradually decline over time because one of the primary sources of funding for these programs is the repayment of the interest and principal on previously issued loans."

The Legislature's budget analyst says that lawmakers should postpone action on Gov. Jerry Brown's plan to make changes in the state Unemployment Insurance Fund until "a long-term solvency plan" is formulated.

With double-digit unemployment, California has been running multi-billion-dollar deficits in the Unemployment Insurance Fund (UIF), which is financed by payroll taxes on employers, and has borrowed $10 billion from the federal government to keep state payments flowing. The state is responsible for the first 26 weeks of benefits while the federal government pays for up to 73 more weeks.

Interest payments on the federal loan, more than $300 million, must be paid this year, and the state is borrowing money from the Disability Insurance Fund, which is paid by a tax on workers, to cover the interest. Brown proposes to continue that borrowing next year, but also to raise payroll taxes on employers to pick up the interest costs and tighten eligibility for unemployment benefits. The federal government, meanwhile, will also increase those taxes to repay its UIF loans if the state does not act.

In a new report,

"We recognize that, in light of uncertainty regarding federal UI reforms and the recovery of California's labor market, the Legislature may wish to take a wait-and-see approach during 2012 and delay enactment of a long-term solvency plan until next year," the LAO report says. "Enactment of a long-term plan will likely necessitate significant legislative deliberation and compromise among the various stakeholders of the UI system. For this reason, if the Legislature elects to delay addressing UI fund insolvency, we think that is would be premature to enact the governor's proposed employer surcharge and monetary eligibility changes."

The LAO says that to make the UIF solvent, the Legislature would probably have to boost payroll taxes and reduce eligibility for benefits further - tough issues with the economy still struggling.

Tom Torlakson, the state superintendent of schools, took a stand Tuesday on the three-way political wrestling match over asking voters to raise taxes - sort of.

Gov. Jerry Brown has a proposal to raise income and sales taxes, and is trying to persuade sponsors of two other November ballot measures to benefit schools, a so-called "millionaires' tax" and a broader income tax hike, to drop their campaigns. He says that if all three are on the ballot, voter confusion could sink all of them.

Torlakson told an Assembly budget subcommittee that he sees "the success of governor's November revenue initiative as a vital and essential step...and I urge you to build your budget accordingly."

But under questioning from legislators, Torlakson conceded that education advocacy groups are "all over the map" on which tax plan to support and added, "I personally support all three."

While Torlakson urged lawmakers to build a budget based on Brown's tax increase, and endorsed portions of Brown's proposed overhaul of the state's school finance system, he was skeptical about the governor's plans to also change testing and other academic accountability systems. And he was sharply critical of Brown's plans to overhaul child care.

Finally, Torlakson said it would be "both unfair and harmful" to force schools to take the brunt of spending cuts should voters reject Brown's tax plan, as the governor proposes.

Several thousand protesters descended on the state Capitol Monday to protest the rising cost of higher education and call on lawmakers to increase funding for California's public colleges and universities.

Speakers at a rally on the west steps of the Capitol blasted the budget cuts to higher education and the cost of tuition and fees at campuses throughout the state, framing access to a degree as a right that should be extended to students of all socioeconomic standings.

"Regardless of our backgrounds, we all have been wounded by these cuts," said Sydney Fang, a student senator at UC Berkeley. "Today we stand in solidarity as students, as workers and as community members because we have had enough. We have had enough. UC regents have not heard our voices and it is time for our legislators to stand with us."

Top Democratic leaders from both houses, who negotiated and voted for the cuts in recent years, spoke at the rally, which was organized by Student Senate for California Community Colleges, California State Student Association and the University of California Student Association. A group called REFUND California that supports funding schools and universities with a proposed income tax hike on Californians making more than $1 million dollars a year was also present at the rally and march and planned to "Occupy" the Capitol later in the afternoon.

Assembly Speaker John A. Pérez thanked attendees for coming to the Capitol to send legislators a message that they must "keep the promise of an accessible, affordable higher education for everybody in the state of California at our community colleges, our UCs and our CSUs."

"California is watching you and the people of our state agree with you," the Los Angeles Democrat said. "We need to fund higher education. We need to commit ourselves to future generations and by being here you're sending a powerful message."

The remarks from both Pérez and Senate President Pro Tem Darrell Steinberg drew chants of "Show us! Show us!" from the crowd.

"Show us? We have to show you. You're right," Steinberg said.

He told the crowd, which at times broke into chants of "you'll hear us out or we'll vote you out," that he understood their anger.

"You have the right to be mad," Steinberg said. "Too many people are getting big tax breaks while the cost of higher education for you is going up."

The Sacramento Democrat pledged to put more money into higher education with a majority-vote budget as soon as possible. Both he and Perez touted the speaker's legislation to eliminate a corporate tax break to raise money for tuition relief and Steinberg's own bills aimed at lowering the cost of college textbooks.

Photos of the rally at the state Capitol by Randy Pench / rpench@sacbee.com

The state Board of Equalization today released its annual list of the 500 biggest sales and use tax scofflaws.

Once again, the list is topped by Downey-based California Target Enterprises, a gas station company not related to the retail store chain. Tax auditors say the company owes the state's coffers a cool $18.3 million.

In all, the 500 top delinquent taxpayers owe $555.7 million, according to the BOE.

A new law requires the public posting of the top 500 delinquents, up from 250 that had been required since 2007. Also, beginning in July, state agencies that issue licenses or permits are required to suspend or refuse to issue to any entity on the list.

In a hearing that included testimony from children as young as 6 years old, an Assembly budget panel on Wednesday rejected Gov. Jerry Brown's welfare-to-work cuts.

The Assembly's health and human services budget subcommittee voted 3-1 along party lines against cutting grant levels and eliminating adults after 24 months, instead of 48, if they cannot find work. Brown had counted on CalWORKs cuts to save $946 million to help close a deficit he estimates at $9.2 billion.

The state has reduced welfare benefits since the recession, such as shrinking the adult time limit from 60 months to 48 months and cutting maximum grants by 8 percent last year. Brown this year proposed restructuring CalWORKs to spend more on benefits for people who find work and less on those who cannot.

Welfare advocates testified Wednesday that Brown's plan would harm families because many recipients have tried and failed to find jobs in the current economy.

The panel instead agreed to find other ways to save and wait to see what the state's revenue picture looks like after tax dollars come in March and April. Though lawmakers likely won't take substantive floor action on the state budget until June, Wednesday's action marked the first significant legislative rejection of Brown's plan since he introduced it in January.

The only Brown items the panel agreed to Wednesday come with a higher immediate state cost rather than general fund savings. Democrats argue that the changes create more incentives for people to work and reduce dependence on the program in the long run. Lawmakers agreed to ignore $225 in monthly income - rather than $112 - when determining whether someone is eligible to receive welfare benefits, which would cost the state about $90 million.

They also agreed to provide a $50 monthly work bonus to non-CalWORKs families receiving food stamp benefits or state subsidized child care starting in July 2013. That change is largely intended to count more people toward meeting federal work requirements and avoid penalties, though it would cost the state $126 million annually in future years.

Gov. Jerry Brown is counting on $6.5 billion too much through June 2013 even with a Facebook stock sale on the horizon, according to a new review by the state's fiscal analyst.

The nonpartisan Legislative Analyst's Office has taken a more pessimistic view of capital gains in California over the next 16 months, though it acknowledges in its new report that predicting those totals is "notoriously difficult." California's heavy reliance on volatile capital gains income has been a huge reason why the state has found it so difficult to budget in recent years.

The analyst's latest revenue forecast is not that different from its November projection, which translated into Brown being too optimistic by almost the same amount as today's report. Based on that projection, the analyst pegged California's deficit at nearly $13 billion at the time. Brown, using a more optimistic forecast, says the deficit is only $9.2 billion.

The LAO's Jason Sisney says that his office is not ready to update its deficit total because that requires other calculations such as how much schools are owed. But he said "in general it's worse than the governor's January forecast. By how much, we don't know."

"If our revenue forecast proves to be more accurate than the administration's, the Legislature and the Governor will have to identify additional budgetary solutions to bring the 2012-13 state spending plan into balance," the analyst's office writes. "Much more information will become available by the end of April, when a large amount of income tax payments are received by the state and refund payments are made."

Due to this unpredictability, the analyst's office explicitly recommends today that the Legislature wait until the governor revises his budget in May before writing the 2012-13 budget. But the latest news is hardly reassuring for legislative Democrats who said they were counting on an even more fruitful April than Brown predicted to avoid the deep health and welfare cuts the governor proposed.

The analyst's office would have been even more pessimistic had Facebook not filed paperwork for an initial public stock offering this month. The office estimates that California will receive about $2 billion through June 2013 in Facebook IPO-related income tax payments than it would have otherwise.

Updated at 11:55 a.m. with comment from Jason Sisney.

Gov. Jerry Brown wants to give drivers a $5 discount for avoiding Department of Motor Vehicles offices when they renew their registration, but the state's top fiscal analyst questioned the plan Friday as a money loser.

Drivers would save $5, dropping the renewal rate from $43 to $38, if they register by mail, phone, online, auto clubs, private vendors or self-service terminals. Brown says this would cut wait times and congestion at DMV offices.

But in its review, the nonpartisan Legislative Analyst's Office says the proposal would result in $75 million in lost revenues in 2012-13 and $100 million annually thereafter. Meanwhile, the state would ultimately lose only 25 positions for $706,000 in annual savings. It would not affect the state's general fund budget -- for now, at least -- but instead the special Motor Vehicle Account that pays for DMV operations and is funded largely through registration fees.

As California school districts cope with declines in local and state revenue, more of them are showing up on the state Department of Education lists of financial distress.

The latest of the semi-annual listings, released Thursday, reveals that a third of the state's 6 million K-12 students are attending schools in 127 districts rated as in danger of being unable to meet their financial obligations, 17 more than made the list a year earlier.

Seven districts were given "negative certification" for being in imminent fiscal danger while 120 others were given "qualified certification," including the state's largest district, Los Angeles Unified.

Major "tax expenditures" - exceptions to general tax policy to benefit specific activities - cost the state treasury $45 billion a year in lost revenue, the Legislature's budget analyst says in a new report.

They range from the $4.3 billion income tax deduction for mortgage interest to a $28 million sales tax exemption for rentals of linen supplies, and while they should be periodically reviewed, the Legislative Analyst's Office says, "evaluations are very hard to do" because assumptions about their effects are difficult to verify.

While critics often decry tax "loopholes," each of the tax expenditures has a base of supporters who benefit, and they are difficult to change. Creating a new one takes only a simple majority legislative vote but legally, erasing one is considered to be a tax increase, thereby requiring a two-thirds vote.

In addition to the mortgage interest deduction, big income tax exemptions include employer contributions to pension and health insurance, $3.5 billion and $3.2 billion respectively, a $2.5 billion "step-up" basis for inherited property, and a $2.4 billion exclusion of Social Security benefits.

The biggest corporate tax expenditure is a $1.2 billion credit for research and development, followed by the $1 billion cost of allowing multi-state corporations to elect whether to use a "single sales factor" in calculating taxable income. The latter was enacted just two years ago, and Democratic legislators want now to repeal it.

The biggest sales tax exemption is for food, pegged at $3.8 billion, followed by exemptions for utility services ($2.4 billion) and prescription medicines $1.6 billion).

Gov. Jerry Brown reversed course this week by restoring $496 million in school bus money in his budget proposal for next fiscal year after facing criticism from education groups.

The decision comes after the governor signed legislation Friday that restored bus funding for the remainder of the current school year after districts lost that money in December's midyear cuts. Brown quietly issued a new education budget plan this week ahead of a Thursday state Senate hearing.

Brown's reversal in 2012-13 comes with some caveats. First, it relies on voters approving his plan to raise income taxes on the wealthy earners, as well as sales taxes by a half cent. It allows districts to spend their bus money on other purposes. And the governor intends to eliminate school transportation earmarks in 2013-14, though districts may receive funding in a new form allowing them to maintain bus service.

Standard & Poor's improved California's bond outlook from stable to positive Tuesday, a signal that the deficit-ridden state could be in line for a ratings bump.

S&P analyst Gabriel Petek said S&P believes there's at least a 1 in 3 chance that California's rating could rise from A-minus to A sometime in the next two years. The state's A-minus is currently S&P's lowest among U.S. states.

In a 15-page analysis, S&P said that the state's new majority-vote budget requirement is a major reason why the state now has a positive outlook. Voters approved the requirement in 2010 in Proposition 25, which also docks pay if lawmakers submit a late budget.

S&P also credited a rise in revenue growth as the economy recovers, as well as a series of recurring budget cuts that Gov. Jerry Brown and Democratic lawmakers enacted last year.

This is the list of parks that should be saved under agreements that have been set up and the type of arrangement in the works for each, according to the California Department of Parks and Recreation.

1. Antelope Valley Indian Museum - Donor
2. Colusa-Sacramento River State Recreation Area - City of Colusa
operating agreement
3. Del Norte Coast Redwoods State Park - National Parks Service
4. Samuel P. Taylor State Park - National Parks Service
5. Tomales Bay State Park - National Parks Service
6. Henry W. Coe State Park - Donor
7. McGrath State Beach - Donors and grants
8. Mono Lake Tufa State Natural Reserve - Concession agreement
9. Point Cabrillo Light Station State Historic Park - Operating agreement (unspecified)
10 South Yuba River SP - New parking fees

Here is the list of the original 70 parks on the chopping block:

California revenues last month lagged 5.5 percent behind what Gov. Jerry Brown expected in his just-proposed January budget, a development that Controller John Chiang termed "disappointing."

Though the big spring revenue months and Facebook's public stock offering are still to come, the latest report may provide a cautionary signal for Democratic lawmakers who think Brown's forecast is too pessimistic.

According to Chiang's office, the state fell $528.4 million behind the governor's latest projection for January, including a $525 million (6.3 percent) shortage in income tax collections. After the first seven months of the fiscal year, the state is $694 million in general fund revenues, or 1.1 percent, behind Brown's latest plan to solve a $9.2 billion deficit through June 2013.

"January revenues were disappointing on almost every front," Chiang said in a statement.

Senate President Pro Tem Darrell Steinberg said today that a nonprofit group's decision to scrap a proposed ballot initiative targeting public employee pensions does not alter his commitment to tackle that issue.

"We are committed to getting pension reform done," the Sacramento Democrat said in a news conference.

Steinberg said he anticipated the question after the advocacy group, California Pension Reform, announced Wednesday that it was shutting down its effort to place a pension initiative before voters this year.

Steinberg said he is committed to passing pension reform before adoption of a state budget this year.

The Senate leader said he intends to address all 12 points of a pension overhaul proposed by Gov. Jerry Brown, but added, "That doesn't mean we're going to do every point in the way he suggests."

The Legislative Analyst's Office raised concerns with Gov. Jerry Brown's higher education budget in a new report today, including his plans to tighten Cal Grant requirements and automatically increase funding if his tax plan passes.

After the state slashed its higher education spending by 21 percent during the recession, the Democratic governor has proposed 4 percent annual increases to the University of California, California State University and California Community Colleges for three fiscal years starting in 2013-14 -- but only if voters approve his plan to hike taxes on sales and wealthy earners. If voters reject the plan, the systems would lose state funding in 2012-13.

Brown made the 4 percent promise as a sweetener to his tax proposal, which he's trying to bill as a plan for funding education and public safety. The analyst's office recommended that lawmakers reject the 4 percent promise. Pledging to give automatic increases presents problems, the LAO said, because other parts of the budget could suffer, lawmakers would have little discretion if one higher education system needed more money than another, and the pledge ignores enrollment and inflation, among other reasons.

Department of Finance spokesman H.D. Palmer said the governor wants to give the education systems "a level of stability and predictability."

The analyst's office also raised questions with Brown's plan to increase grade-point average requirements to receive Cal Grant awards.

Federal health officials rejected California's bid to charge Medi-Cal copayments for everything from drugs to hospital visits, dealing a new blow to the state budget but relief to low-income patients and their providers.

Gov. Jerry Brown and lawmakers relied on mandatory Medi-Cal copayments to save $511 million in last year's state budget and presumed that the state would continue saving in future years.

The governor's latest budget, which estimates a $9.2 billion deficit, acknowledges the lost savings in 2011-12. But it is relying on $575 million to help balance next year's budget, according to Department of Finance spokesman H.D. Palmer.

The plan to charge low-income Medi-Cal patients and allow doctors to refuse care for nonpayment was unprecedented for a state on such a wide scale. The charges ranged from $3 for "preferred" drug prescriptions to $5 for doctor visits and a maximum $200 on hospital visits. Medi-Cal serves about 8 million Californians, though patients also eligible for Medicare were exempt from the copays.

The state was required to obtain approval from the Centers for Medicare & Medicaid Services (CMS) to implement its plan. But CMS said in a letter today that it was "unable to identify the legal and policy support" for the change. Under the Social Security Act, a state must meet several tests in order to charge copays, which include "providing benefits to recipients of medical assistance which can reasonably be expected to be equivalent to the risks to the recipients."

California lawmakers sent bills to Gov. Jerry Brown on Thursday that would allow the state to borrow $865 million from earmarked state accounts and K-12 districts to continue busing their students this school year.

The Democratic governor supports both measures, though his office has not said when he will act on them.

Senate Bill 81 would help rural and urban students that rely heavily on buses by transforming a $248 million mid-year transportation cut into a general-purpose reduction that hits all 1,042 school districts evenly. Some rural districts stood to lose more than $1,000 per student; under SB 81, all districts will lose about $42 per student.

The bill had bipartisan support in both houses, though some suburban Republicans have objected because their districts long ago reduced bus service and now face a larger cut under SB 81.

The Senate and Assembly also approved Senate Bill 95 allowing the state to borrow $865 million from earmarked accounts, most of which fund transportation. It is part of a plan to ensure the state does not run out of cash to pay its priority bills in early March.

Controller John Chiang said this week that without $3.3 billion in additional borrowing and payment delays, the state will fall below its comfortable cash cushion for several weeks starting Feb. 29. Chiang said that by March 8, the state would end up $730 million in the red.

Besides the internal borrowing in SB 95, the state plans to ask Wall Street for a short-term loan, have the University of California borrow on the state's behalf and delay payments to Medi-Cal hospitals and counties.

In other action, both houses passed Senate Bill 98 to reinstate the Board of Registered Nursing through 2015 after Brown vetoed a bill last year to extend its existence. The governor said he objected to last year's proposal, Senate Bill 538, because it would have expanded pension benefits for board investigators.

Jim Sanders and Dan Smith contributed to this report.

California stands to gain hundreds of millions of tax dollars after Facebook goes public, but fiscal analysts say it's hard to predict when that money will flow into state coffers.

The Menlo Park-based social media giant filed papers today to launch a $5 billion stock offering, and state officials are giddy over the prospect of Facebook money helping California dig out of a $9.2 billion deficit.

The state's nonpartisan Legislative Analyst's Office, dubbing the potential state windfall the "Facebook Effect," estimates California could receive more than $1 billion across the next several years. The Department of Finance has not included the Facebook IPO in its projections, while the Analyst's Office assumed some stock offerings would take place, though not one as large as Facebook's.

"We don't know what the specific amount is going to be, but if it's as significant as it's projected, then on behalf of a very grateful state, I will happily go to Mark Zuckerberg's house and wash his windows or mow his lawn," joked H.D. Palmer, spokesman for the state Department of Finance, referring to the company's CEO.

California would gain once Facebook insiders sell shares and pay state income taxes on their gains.

If voters approve Gov. Jerry Brown's tax plan in November to raise income taxes on wealthy earners (in addition to hiking the state sales tax by a half-cent), Facebook employees could pay as much as 12.3 percent to the state on income above $1 million. Tax proposals by the California Federation of Teachers and attorney Molly Munger would impose higher rates than Brown's plan.

Without any tax hike, millionaire rates would be at 10.3 percent, including the one percentage point tax for mental health services.

The big question mark is when those employees will begin selling -- and paying the state. While Brown and lawmakers would love for money to flow as soon as possible, LAO forecaster Jason Sisney says it may take a couple years for the state to benefit.

California will run out of cash by early March if the state does not take swift action to find $3.3 billion through payment delays and borrowing, according to a letter state Controller John Chiang sent to state lawmakers today.

The announcement is surprising since lawmakers previously believed the state had enough cash to last through the fiscal year that ends in June.

But Chiang said additional cash management solutions are needed because state tax revenues are $2.6 billion less than what Gov. Jerry Brown and state lawmakers assumed in their optimistic budget last year. Meanwhile, Chiang said, the state is spending $2.6 billion more than state leaders planned on.

A Los Angeles federal judge has tentatively blocked Medi-Cal reimbursement cuts to doctors and other providers who treat low-income patients.

U.S. District Court Judge Christina A. Snyder ruled today that the state cannot reduce payments by 10 percent to Medi-Cal doctors, dentists, ambulance services and other providers. The tentative decision comes after Snyder previously blocked cuts to hospital-based nursing units and some pharmacists.

Gov. Jerry Brown and state lawmakers included the 10 percent cut in last year's budget as a way to save $623 million. They won approval from the Obama administration in late October.

Plaintiffs such as the California Medical Association and the California Dental Association argued that the Medi-Cal cut would reduce access to patients as more providers opt out of the system. The state already pays among the lowest rates in the nation to those who treat low-income patients.

"Medi-Cal patients are already having a tough time getting access to care," said CMA President James T. Hay in a statement. "The approved cuts are irresponsible and will only put the health of California's most vulnerable population further at risk."

Courts have blocked various state budget cuts before, and Brown has blamed rulings for some of the current deficit problems. In a separate case that will have a major impact on whether courts can block such cuts, the U.S. Supreme Court is expected to decide this year if provider groups can sue over cuts to Medi-Cal or Medicaid programs in other states.

Norman Williams, spokesman for the state Department of Health Care Services, said he could not comment on the litigation. But he stressed that the state satisfied federal officials last year.

"What we can say is that the various rate reductions approved by the federal Centers for Medicare & Medicaid Services are supported by extensive analyses conducted by DHCS," Williams said in an e-mail. "The findings showed that the approved reductions will allow California to continue to meet federal standards requiring an adequate level of access to care for beneficiaries."

Updated to include comment from state Department of Health Care Services spokesman Norman Williams.

California voters like Gov. Jerry Brown's idea of making high earners pay more taxes, but otherwise are of mixed minds about solving the state's chronic budget woes, according to the Public Policy Institute of California's latest poll on the topic.

Here are a few findings from the poll, released today:

• Among likely voters, 40 percent think the budget problem should be solved through a mix of cuts and tax increases, while another 41 percent think it should be solved mostly through spending cuts.
• But about half of likely voters oppose Gov. Jerry Brown's welfare cuts, and 75 percent oppose the school cuts he's threatened if tax increases don't pass.
• More than 60 percent would pay higher taxes to maintain funding at current levels for K-12 education, while slightly less than half would shell out more for higher education or health and welfare.
• But nearly two-thirds are opposed to raising the sales tax, while 68 percent favor raising income tax rates on the wealthy. Both provisions are in Brown's plan.
• Less than half - 48 percent - favor Brown's entire plan, cuts and tax increases included.
• Two-fifths of college graduates said they knew very little or nothing about the budget. Only 11 percent of all voters could identify both the top spending category (K-12 schools) and top revenue source (income tax).

After a mid-year budget cut wiped out school bus funds, state lawmakers are pushing a bill to restore transportation money by cutting general purpose dollars in all districts.

The Senate budget committee amended its Senate Bill 81 in the Assembly yesterday, signaling lawmakers' intent not only to preserve school bus service now, but in the future as well. Gov. Jerry Brown proposed eliminating school bus funds permanently in his 2012-13 budget.

Brown has shown little willingness to reverse cuts, especially with the state facing a new $9.2 billion deficit. With that in mind, SB 81 would replace the $248 million school bus cut with an across-the-board reduction to all districts equal to about $42 per student, shifting more of the pain to suburban districts that don't offer much bus service.

The midyear bus cut hit rural and urban districts particularly hard. According to data compiled by the California School Boards Association, the isolated Death Valley Unified School District would lose $1,734 per student. Meanwhile, Davis Joint Unified would lose less than $8 per student and Rocklin Unified less than $10.

The state's coalition of education groups, which includes teachers, school boards and administrators, supports the change. Brown's Department of Finance does not yet have a position, said spokesman H.D. Palmer.

The reduction was triggered in December when fiscal forecasters determined California would fall $2.2 billion short of the optimistic revenue projections that Brown and lawmakers used last June. Since last month, rural school districts have lobbied lawmakers to reverse the bus cut, noting that it would cause uneven hardship throughout the state.

The Los Angeles Unified School District filed a lawsuit to block the bus cut last month, alleging it would violate federal busing mandates and past court decisions ensuring equal education funding across districts. LAUSD would lose $61 per student, according to the CSBA data.

Updated to clarify that the cut would apply to general purpose funding, which largely pays for classroom instruction but also goes toward administration and other costs.

PHOTO CREDIT: Pleasant Grove High School students get off their bus on Friday, Feb. 20, 2009. The Sacramento Bee/ Hector Amezcua

By Kevin Yamamura
kyamamura@sacbee.com

A federal judge on Thursday continued to block the state from reducing in-home care to low-income disabled and elderly residents, a budget cut pursued last year by Gov. Jerry Brown and lawmakers.

The reduction would have slashed one-fifth of service hours for In-Home Supportive Services recipients to save the state $100 million over the next six months.

U.S. District Court Judge Claudia Wilken converted her temporary December order blocking the state into a preliminary injunction.

Last month, Wilken said the IHSS cut "raises serious questions" about whether the state had violated several federal laws, including those protecting people with disabilities.

The state will challenge the decision with the U.S. Ninth Circuit Court of Appeals, said Department of Finance spokesman H.D. Palmer. He said that since last summer, court decisions and federal administrative delays have cost the state nearly $2 billion in savings. It is a factor that Brown has cited as contributing to the state's $9.2 billion deficit.

While Gov. Jerry Brown sold his budget plan to outside groups in Southern California, state lawmakers greeted his proposal with a skeptical eye Thursday inside the Capitol.

In a Senate budget committee hearing, Democrats raised concerns not only about Brown's cuts to schools and health and welfare programs, but also about the strength of his revenue projections, which the nonpartisan legislative analyst has called optimistic.

One Democrat, Sen. Rod Wright, D-Inglewood, took issue with Brown's tax hikes because he said the sales tax increase would hurt the poor.

"I understand the politics, but in terms of policy and benefiting poor people, I think this does them a disservice," Wright said. "If somebody makes $10,000 a year or somebody makes $300,000 a year, the sales tax on toilet paper is the same. I'm just saying that disadvantages the people I represent in Watts or Compton."

Gov. Jerry Brown scored a tactical victory in his quest to raise taxes Tuesday when the "Think Long Committee for California" decided not to pursue its own tax reform plan this year.

The committee, which was created by billionaire Nicholas Berggruen and counted a number of prominent Californians in its membership, had proposed a massive overhaul of California taxes to reduce revenue volatility. The group was planning for the November ballot.

That complicated Brown's plans to ask voters for a more modest temporary increase in sales and income taxes that he wants to balance the state budget. He and other advocates worried that having a multitude of competing tax measures on the ballot would confuse voters and perhaps lead to rejection of all.

It's still possible, however, that Brown will have competition because Molly Munger, a wealthy civil rights activist, is pursuing a broad income tax increase to bolster public school financing. Brown is trying to persuade her to back away as well.

The Think Long Committee's announcement that it would postpone its measure until 2014 didn't mention the complicated politics of the situation but rather said it was taking more time to refine its tax reform proposal.

"It is clear from public reaction, stakeholder meetings and our own public opinion research that Californians are hungry for real reform and are more willing than ever to support a sweeping plan that is fair and will put an end to California's perpetual financial volatility and suffocating wall of debt," the committee said in a statement. "At the same time, we recognize the practical constraints of the 2012 election calendar - and have come to the conclusion that it will take more time to perfect these proposals, eliminate unintended consequences and provide every stakeholder and everyday Californians a meaningful voice in that process."

Gov. Jerry Brown is taking a mulligan, tripped up by a typographical error and forced to re-file his ballot initiative to raise taxes.

The Democratic governor on Friday filed paperwork with the state for "The Schools and Local Public Safety Protection Act of 2012- ver. 2." The measure is identical to one Brown filed in December, the governor said in a filing with the attorney general's office, "except that we have corrected a typographical error that resulted in two numbers being transposed."

Re-filing an initiative can delay the attorney general's preparation of its title and summary, potentially condensing the period for a proponent to gather signatures and making that effort more expensive.

But Brown adviser Steve Glazer said this afternoon that he does not expect the mistake to affect Brown's timing ahead of the November election.

"We don't think it will affect our schedule," Glazer said. "It was a typo."

Jon Coupal, president of the Howard Jarvis Taxpayers Association, opposes Brown's tax measure, but he was sympathetic about Brown's mistake.

"It's when you find that mistake after spending $1 million on signatures that that's a real problem," he said. "This is really part of the whole initiative game."

Coupal said he expects the re-filing to "affect the timing a little bit." But for the initiative to be on the street by the end of the month, as Glazer expects, "sounds about right," Coupal said.

Brown's measure, to temporarily increase the state sales tax and income taxes on California's highest earners, is expected to be a major focus for the governor this year, in the second year of his third term.

To see the correction, read Brown's letter on the jump

One of the best examples of the complexity in California budgeting is how Gov. Jerry Brown has proposed saving $1 billion through deep welfare-to-work cuts.

The state cannot cut $1 billion of its own money on welfare, or else it would spend so little on the program that the federal government would take away federal funds. On paper, it looks like Brown would only cut $248 million in state welfare costs, even though $1 billion in welfare programs would be reduced.

To actually save the full $1 billion, the state needs to play the annual fund shift game. Brown's solution: Rather than use only state money to fund Cal Grants - college scholarship aid for the poor - California would use $736 million of federal funds that formerly went to welfare recipients.

California receives a $3.7 billion Temporary Assistance for Needy Families block grant from the federal government each year, which the state uses to help pay for welfare-to-work and other programs that help the poor. Legislative Analyst Mac Taylor suggested Wednesday that this block grant gives states more freedom than other federally funded programs like Medicaid.

In grappling with a deficit, the state is looking for all of the freedom it can get. So when budget writers find outside dollars that can be tapped for other purposes, they use it.

California would likely justify its federal low-income dollars for scholarships by saying that Cal Grants help poor students become employable and discourage them from starting families without financial means, thus keeping them out of the state's welfare-to-work program.

"It doesn't have to be spent on direct assistance," said Caroline Danielson, a policy fellow with the Public Policy Institute of California. "It can serve to help needy families reach self-sufficiency."

California's 6 million-student public education system receives high marks for setting high academic standards but very low grades for meeting those standards and school finance in the latest national rankings by Education Week magazine.

Overall, the state receives a "C grade for its public schools with a mark of 76.1 on the 1-100 scale, slightly below the nation as a whole. For the fourth year in a row, Maryland's schools came out on top at 87.8 while South Dakota came in last with 68.1.

The magazine rates states' schools on six criteria - chances for successes, K-12 achievement, standards and assessments, teaching profession improvement, finance and preparing students for work or college. California received an "A" grade for standards and assessments, a "B" for preparing students, a "C" in chances for success, teaching profession improvement and finance, and a "D" in K-12 achievement.

School finance is the area that draws the most political attention, and in that, Education Week says California does well in equalizing support among schools, with a "B-plus," but is given an "F" for spending, reflecting the state's relatively low level of per-pupil support from state and local taxes.

The state's schools have lost billions of dollars in state aid due to chronic budget deficits and are likely to see more cuts this year, but Gov. Jerry Brown has also proposed an overhaul of how aid is allocated, eliminating many "categorical aid" programs and creating a simpler method that gives more aid to schools with poor and/or low-performing students.

The number of Californians reporting incomes of more than $1 million increased sharply last year, as did their share of the income stream, a new report from the Franchise Tax Board reveals.

The new data will fuel the political debate over whether high-income Californians should pay higher taxes.

There were 10,000 taxpayers in the million-dollar income club during the 2009 tax year -- just one-third of one percent of all returns -- but that number jumped 27 percent to more than 13,000 for 2010, based on tax returns filed in 2011.

The income millionaires reported adjusted gross incomes of $22.4 billion in 2009, an average of $2.2 million each. In 2010, the total jumped 30.2 percent to $29.1 billion, with the average remaining virtually unchanged.

A year ago, Gov. Jerry Brown said at an annual breakfast celebrating Dr. Martin Luther King Jr. that education funding was a civil rights issue, defending his budget plan in the first days of his new administration.

This year, Brown didn't attend. The Democratic governor has a new budget proposal now, and lawmakers at breakfast this morning said it would hurt children, the sick and the poor.

"The members of the California Legislative Black Caucus are aware of how our communities are hurting, and we're doing all we can to prevent the budget from being balanced on the backs of those who can least afford it," said Sen. Curren Price, the Inglewood Democrat and chairman of the black caucus, which put on the event. "We're joining with (Senate) President Pro Tem (Darrell) Steinberg and others in asking the governor to hold off on his proposed budget cuts that are going to hurt schools, the sick and the working poor until the budget initiative is voted on."

If approved by voters in November, the initiative would raise the state sales tax and income taxes on California's highest-earners. But Brown wants the Legislature to enact spending cuts by March, a measure legislative Democrats have dismissed.

"Why would we make cuts that are going to harm people and harm the economy in March when in fact in May there's a ... probability that the deficit number is going to be less?" Steinberg said when Brown proposed his budget last week.

Steinberg invoked King's legacy in his remarks this morning, at the downtown Holiday Inn.

"The politics, the difficulties, the struggles, the bills, the differences, sometimes the partisanship, the elections - they are all about the larger purpose that Dr. King spoke so eloquently about," Steinberg said. "How do we make sure as Californians that every kid has a chance, that the words about equal opportunity and good education are not just words, but are reflected in our public policies? How do we make sure we don't do any more damage to the poor and the needy and those who have suffered more than others because of the difficult budget cuts and decisions we've had to make over the last number of years?"

Brown has said the cuts are necessary in California's poor financial state.

Among the crowd at breakfast was Mervyn Dymally, lieutenant governor when Brown was governor before. Dymally, a former congressman, assemblyman and state senator, was honored in a video tribute, for which Brown recorded a message.

Brown, who had a sometimes strained relationship with Dymally, called him a friend and "one of the legends of California political history."

The 73-year-old governor added, "I'm very glad that he's upholding the finest traditions of us older folk who still cling to power."

Gov. Jerry Brown's budget would help California bring its spending in line with revenues over time, but it relies on volatile income and may contain welfare cuts that are "too severe," the state's top fiscal analyst said Wednesday in his first review.

The Democratic governor released a $92.6 billion general fund budget last week that includes health and welfare cuts while relying on voters to pass a $6.9 billion increase of income taxes on the wealthy and sales taxes. He also outlined an alternative path if the taxes fail that would reduce school program funding by $2.4 billion, about 5 percent.

Legislative Analyst Mac Taylor, in a press conference today, emphasized the wide divide between his tax projections and Brown's. Dating back to 2010-11, Brown is more optimistic by $3.9 billion. If that gap holds, Taylor noted, eventually lawmakers and the governor will have to find more revenues or cuts than Brown proposes.

They disagree mostly over how much Californians will receive in capital gains. The governor's Department of Finance believes taxpayers will reap $96 billion in 2012; the Analyst says it will only be $62 billion, a $34 billion difference. That translates into a $3 billion tax revenue swing.

"I think what we're concerned about is that the capital gains assumptions the administration is making is a little bit optimistic," Taylor said.

"At this time we're really not asking the Legislature to do anything in particular about it," he added. "It's a little bit more, I think, waving the cautionary yellow flag that there is in our view more downside risk to the administration's numbers."

Department of Finance Director Ana Matosantos responded in a statement, "As both we and the Analyst's office have indicated, revenue forecasting during this time of economic uncertainty is difficult ... While some have commented that our revenues are too low and others have said they are too high, we believe they are just right."

Taylor's report suggests that Brown's $1 billion cut in the welfare-to-work program may have some merit in emphasizing work. But he warned that scaling back aid as dramatically as Brown wants may be "too severe."

The governor's proposal drops aid to parents who fail to find jobs after 24 months, rather than the current 48 months. It also would restrict child care access to those making the equivalent of about $37,000 for a family of three, down from about $42,000.

The analyst also warned that because of the way school districts build their budgets, the governor and lawmakers need to be mindful that they may install program cuts this summer before voters have a chance to decide on taxes.

"This means schools in '12-'13 likely will implement most, if not all, of the reductions that many hope to avoid," he wrote. "Given this possibility, the Legislature needs to be very deliberate in structuring a workable trigger package."

Story has been updated with quotes from the Legislative Analyst's press conference and the Department of Finance. Child care income thresholds have been corrected to reflect state median income rather than federal poverty level calculations.

We're No. 49!

After being stuck in the ratings basement since 2009, California's credit rating now ranks better than that of Illinois, according to Moody's Investors Service. Illinois was slapped with an A2 rating last week, worse than California's A1. Moody's penalized Illinois for unresolved pension liabilities and delayed payments.

"The downgrade of the state's long-term debt follows a legislative session in which the state took no steps to implement lasting solutions to its severe pension under-funding or to its chronic bill payment delays," Moody's wrote in its announcement. "Failure to address these challenges undermines near- to intermediate-term prospects for fiscal recovery."

California still ranks worst in the nation according to the two other major agencies, Standard & Poor's and Fitch Ratings. Though S&P kept California's rating at A- last year, it improved the state's outlook to "stable" from "negative" after the state enacted an on-time budget, cause enough for Gov. Jerry Brown to celebrate.

California starts this budget cycle facing a $9.2 billion deficit, $4.1 billion of which is because that June spending plan fell out of whack.

"It's not exactly cause to throw confetti from the top floor of our office here, but I think we can take heart from fact that California's credit standing in the market unquestionably has improved in the last year," said Tom Dresslar, spokesman for state Treasurer Bill Lockyer, of the climb out of the Moody's basement. "California cash borrowing notes received higher ratings last year, and all three of the major agencies have expressed more positive views about our credit worthiness."

California missed its December revenue target by $1.4 billion due to weak income tax totals, closing the first half of the fiscal year down $2.5 billion compared to the budget enacted in June, according to state Controller John Chiang.

That gap isn't a huge surprise, given that the June budget was overly optimistic.

Gov. Jerry Brown said last month that the state budget would fall $2.2 billion short in the current fiscal year, triggering nearly $1 billion in mid-year budget cuts. He also acknowledged that deficit when he built his new 2012-13 budget proposal, which projects a $9.2 billion shortfall between now and June 2013.

But Chiang said the governor's new budget -- which is built on up-to-date economic data -- was still off the mark by $165 million in December, or 2 percent for the month.

Banks have tried to discourage customers from using tellers in person; now Gov. Jerry Brown wants to do the same for renewals at the Department of Motor Vehicles.

The governor, in his latest budget plan, proposed a $5 discount for drivers who use the internet or mail to renew their "routine" vehicle registrations. The plan would save drivers an estimated $100 million statewide annually.

It's unclear how much this would save the state, as opposed to drivers. But Brown's budget says it would "result in savings for the DMV by moving customers from more costly field offices to less expensive methods of renewing vehicle registrations."

As California moves toward an earlier cutoff age for kindergarten, Gov. Jerry Brown has proposed axing funds for a transitional program aimed at children newly shut out of those classrooms.

In his latest budget, the Democratic governor proposed a permanent elimination of funds for transitional kindergarten, a new program designed to serve children not yet ready for regular kindergarten. It would save $223.7 million in 2012-13 and $672 million at full implementation in 2014-15.

In 2010, lawmakers passed a measure to phase in an earlier cutoff age for kindergarten over three years starting in the 2012-13 school year. Students previously could enter kindergarten if they were 5 years old by Dec. 2.

By Dale Kasler
dkasler@sacbee.com

At least one prominent economist says Gov. Jerry Brown is underestimating the strength of the recovery in his new budget proposal.

Chris Thornberg, a Los Angeles consultant who advises State Controller John Chiang, said today he believes tax revenue in the upcoming fiscal year could top Brown's forecast by around $4 billion.

Thornberg, head of Beacon Economics, called the governor's forecast "bizarrely low."

Brown's official economic outlook, released along with the budget Thursday, calls for a "guardedly positive" outlook but says unemployment rates will average 12 percent throughout the next year. California's unemployment has already fallen to 11.3 percent as of November.

Thornberg acknowledged that he's misjudged state revenue projections in the past. When the Legislature approved a budget last June based on a predicted $4 billion surge in revenue, Thornberg said "they're out of their minds." As it turns out, revenue did grow, but by only $2 billion.

Gov. Jerry Brown's introduction of a proposed 2012-13 budget for California not only touches off the annual wrangle over what to spend on what, but the annual debate over the budget's dimensions.

Officially, the governor's budget is $137.3 billion, consisting of a general fund budget of $92.6 billion, $39.8 billion in special funds (Caltrans, Department of Motor Vehicles, etc.) and just under $5 billion in bond funds.

But that official number ignores about $70 billion in federal funds that will be funneled through the budget, thereby bringing the total to more than $200 billion, or roughly 10 percent of the state's economy.

But wait, as the TV pitchmen say, there's more.

California's top Senate Democrat today shut the door on Gov. Jerry Brown's budget proposal to make deep cuts to social services programs in the first few months of the year.

The January spending plan unveiled by Brown today includes nearly $1.4 billion in cuts to the state's welfare-to-work and subsidized child care programs. The Democratic governor called on lawmakers to approve those cuts in March to maximize savings.

But Senate President Pro Tem Darrell Steinberg, echoing comments made Wednesday, said he wants to hold off on further spending reductions in hopes that the state will see an uptick in revenues this spring.

"Why would we make cuts that are going to harm people and harm the economy in March when in fact in May there's a real not just possibility, but if the trend continues, a probability that the deficit number is going to be less," the Sacramento Democrat told reporters, pointing to improvement in a revenue forecast made in December.

Read Gov. Jerry Brown's budget proposal for the fiscal year that ends in June 2013.

Gov. Jerry Brown will release his budget today at 2:30 p.m. after his administration mistakenly posted the document on the Department of Finance website.

The projected budget deficit is $9.2 billion through June 2013, according to sources who have seen the document.

The Democratic governor was scheduled to release the budget on Tuesday and dismissed reporters' questions this morning about his plan, saying he wanted to be sure the media would show up for next week's release.

The budget announcement will be streamed online live at his website.

A federal judge has blocked a California state budget cut that would have affected rural patients, the latest indication that courts will have the last word on Medi-Cal reductions.

Gov. Jerry Brown and lawmakers cut reimbursement rates to a variety of Medi-Cal providers by 10 percent to save $623 million in their June budget. Physicians, pharmacists and hospitals, among others, have argued that the cut to California's already low payment rates would discourage providers from accepting Medi-Cal patients and reduce access.

U.S. District Court Judge Christina Snyder issued a preliminary injunction Wednesday blocking the specific rate cut to nursing units within hospitals, many of which are located in rural California. Snyder determined that the California Hospital Association and other plaintiffs had a reasonable argument that the state had failed to appropriately review whether Medi-Cal patients would lose sufficient access to care.

The state Department of Health Care Services will ask the court to reverse the injunction and file an appeal with the U.S. Ninth Circuit Court of Appeals, a spokeswoman said Friday in an e-mail.

Physicians and pharmacists have filed a separate suit asking the court to block the rate cut to their services. The court filings come after the Obama administration approved most of California's Medi-Cal cuts in October.

In a separate case before the U.S. Supreme Court this fall, White House and California officials argued that groups such as the California Hospital Association should not be able to challenge cuts to Medi-Cal, the state's Medicaid program serving low-income children and people with disabilities. If the high court rules in favor of California, the state will have more leverage to cut Medi-Cal in the future, while health care advocates will have fewer ways to challenge budget reductions.

Updated at 2:20 p.m. to note the state will appeal the decision.

Here is the California Supreme Court's decision in the redevelopment case:

Redevelopment

In a significant budget win for Gov. Jerry Brown and lawmakers, the California Supreme Court ruled Thursday the state can eliminate the local agencies that subsidize construction in blighted areas.

The decision strengthens the state's ability to take funds from redevelopment agencies for the current budget. It also provides leverage for state leaders to use more than $1 billion annually in redevelopment property tax dollars to balance future budgets.

The court called the elimination of redevelopment "a proper exercise of the legislative power vested in the Legislature by the state Constitution."

But justices ruled invalid a second bill that would have reconstituted redevelopment agencies in a different form. That decision spells the agencies' demise unless lawmakers pass a new redevelopment plan when they return next month.

Lawmakers counted on raising $1.7 billion from the two-bill package. The court's ruling on the second measure may result in less money this year but more in future years from property taxes that would have otherwise gone to redevelopment.

"Today's ruling by the California Supreme Court validates a key component of the state budget and guarantees more than a billion dollars of ongoing funding for schools and public safety," Brown said in a statement this morning.

Local government advocates and some Democrats issued a response today calling for a new bill to reinstate redevelopment agencies.

"Without immediate legislative action to fix this adverse decision, this ruling is a tremendous blow to local job creation and economic advancement," said California Redevelopment Association board president Julio Fuentes. "The legislative record is abundantly clear that legislators did not intend to abolish redevelopment."

In his own statement, Speaker John A. Pérez, D-Los Angeles, called the decision a "mixed result" because the court struck down the second bill. He said lawmakers "remain committed to finding affordable housing solutions and making smart economic development investments in our local communities."

State leaders axed redevelopment agencies in June as they closed a deficit once projected at $26 billion. As part of the plan, cities could reorganize the agencies only if they agreed to use their money to pay for state obligations this fiscal year and make smaller $400 million contributions in future years.

Cities and redevelopment agencies sued the state in August to block the plan, saying it was akin to the state demanding a "ransom payment." Critics in the Legislature said the state could ill afford to subsidize private developers, pointing to venues such as "Dive Bar," a watering hole steps from the Capitol that features a mermaid tank.

The state's high court agreed to fast-track the case. By issuing a decision today, the court gave state leaders guidance before Brown proposes his 2012-13 budget in less than two weeks.

Updated throughout the day with additional responses and reporting.

The California Supreme Court will rule Thursday on a case with huge implications for the state budget and the future of some 400 local redevelopment agencies.

The agencies sued this summer after the budget adopted by lawmakers and Gov. Jerry Brown allowed agencies to reopen only if they contributed $1.7 billion to schools and $400 million a year thereafter.

After oral arguments in October, the high court put the case on the fast track.

Gov. Jerry Brown's quest to impose a fire fee on rural homeowners has run into another delay.

The state Board of Forestry and Fire Protection has withdrawn its latest version of a $150 annual charge on 800,000 property owners in rural California, according to Cal Fire spokesman Daniel Berlant. The board plans to revisit the issue in January for the third time since Brown and lawmakers authorized the fee in their June budget.

Brown said the fee was necessary to pay for fire services as more residents have moved into rural areas of the state.

After Brown restocked the fire board this fall with new members, the panel approved an emergency regulation last month to bill property owners $150 each, with a $35 credit for those situated in fire districts. Before withdrawing the proposal this week, the board sent the regulation to the state Office of Administrative Law with an expectation the state would bill property owners by June.

It was not immediately clear why the board wants to revise its fee, but Berlant confirmed an Ag Alert commentary this week that said the panel may seek to exempt buildings such as hospitals and county jails.

California's largest school district, Los Angeles Unified, announced today it will file suit to block the state from eliminating $248 million in school bus funding.

Superintendent John Deasy said in a statement that his district is under a 1981 court order to run buses for 35,000 students in the wake of a desegregation case. The district must also provide transportation for 13,000 students with disabilities under state and federal laws.

Gov. Jerry Brown announced the bus cut as part of a $980 million package of cuts that triggered into effect once fiscal officials determined the state would fall $2.2 billion short in revenues this year. The governor acknowledged that K-12 districts are still required to bus some students but suggested they could still pay for buses by cutting elsewhere.

Gov. Jerry Brown announced today that California will impose $980 million in mid-year trigger cuts to a variety of public programs. That comes after Brown's Department of Finance determined the state will fall $2.2 billion short of its optimistic summer revenue forecast.

For a more detailed explanation of how some cuts will be felt, check out our Monday story.

The official cuts list is as follows:

Effective Jan. 1, 2012:
-- Reduce vertical prosecution grants, which allow county prosecutors and investigators to remain involved as cases work through the judicial system. Savings: $14.6 million
-- Extend Medi-Cal cuts and copays to managed care plans. Savings: $8.6 million
-- Undefined cut to Department of Developmental Services. Savings: $100 million
-- Reduce In-Home Supportive Services hours by 20 percent, eliminate local anti-fraud funding. (A federal judge has temporarily blocked the service hours cut.) Assumed savings: $101.5 million
-- Undefined cut to Department of Corrections and Rehabilitation. Savings: $20 million
-- Reduction in state-subsidized child care. Savings: $23 million
-- Elimination of school bus service funding. (K-12 districts say this will likely result in cuts elsewhere so federally mandated bus services can continue.) Savings: $248 million
-- Eliminate state grants to local libraries. Savings: $15.9 million
-- Undefined cut to University of California. Savings: $100 million
-- Undefined cut to California State University. Savings: $100 million
-- Reduction to California Community Colleges. (Will result in $10/unit fee hike starting in the summer 2012 term.) Savings: $102 million
-- Charge counties $125,000 for housing juvenile offenders. Savings $67.7 million

Effective Feb. 1, 2012:
-- Cut general funding to K-12 schools. Savings: $79.6 million

Gov. Jerry Brown will slash higher education, child care and school bus service, but he will largely spare K-12 classrooms from mid-year cuts under a revised budget forecast released today.

K-12 school districts were at risk of losing as much $1.5 billion - the equivalent of seven instructional days - under the budget Brown and lawmakers enacted earlier this year. But they will face a smaller $79.6 million reduction in general funding. That should avert massive reductions in the school calendar or other drastic measures for most districts.

"It turns out the cuts are far less than they would have been," Brown said.

Districts will still face a $248 million elimination of school bus funding, however. Jill Wynns, president of the California School Boards Association, said districts will cut somewhere other than buses because they are mandated by federal law to provide transportation for students with disabilities.

Colleges, child care, libraries, counties and disabled services will all face the knife as well. A full list is here.

Some cuts will be more immediate than others, based on how well positioned each program is to handle an immediate loss in funds.

University of California will absorb its $100 million cut by tapping reserves, and activists for disabled residents are challenging a $100 million cut to In-Home Supportive Services in court. But rural and low-income residents may lose free access to library services outside their home area, while some families could lose subsidized child care.

California Community Colleges Chancellor Jack Scott said Tuesday he anticipates the latest cuts will lead to a $10 per unit hike from $36 to $46 starting with the summer 2012 term. That comes after a fall 2011 increase from $26 to $36. Scott believes the new fee hike will remain permanent given the state's ongoing budget problems.

All told, the state will impose trigger cuts of $980 million, less than half the amount the Legislative Analyst's Office predicted last month.

The Analyst's Office predicted that K-12 schools faced a $1.1 billion cut in classroom funding alone and the elimination of school bus money.

Brown's forecast is better than the Analyst's in part because the governor's Department of Finance had another month of data to review. Department of Finance Director Ana Matosantos said a variety of differences, from strong November sales taxes to higher revenues from millionaires, contributed to the difference in forecasts.

Updated at 2:15 p.m.

Some good budget news, for once. California beat its November revenue projections by $497.7 million, or 8.9 percent, state Controller John Chiang reported today.

That comes just days before the Department of Finance is slated to announce how much money it believes California will receive for the 2011-12 fiscal year, which will ultimately decide how much the state has to cut starting in January.

Through the first five months of the fiscal year, California is $1 billion short of its revenue forecast, or 3.4 percent, better than the $1.5 billion revenue gap Chiang reported last month.

Personal income taxes drove the November boost. The state took in $531.4 million, or 19.6 percent, more in income tax revenues than expected. Sales taxes were on target, while corporate taxes were $57.9 million, or 53.6 percent, higher than expected.

But the state has also spent $1.95 billion more than projected through November, Chiang reported.

The California Department of Mental Health today proposed eliminating about 600 state hospital positions to shed costs, reducing the department's authorized workforce by about 5 percent.

The proposal came as the department prepares to establish a new Department of State Hospitals next year. It announced a series of streamlining and cost-reduction measures ahead of a formal budget proposal next month.

More than half of the positions proposed for elimination are vacant, and employees who are affected may move to other jobs within the department, said Kathy Gaither, acting chief deputy director of the department.

"The goal is no layoffs," she said.

Conditions at the state hospitals have drawn the attention of federal officials for years, but Gaither said the department could manage the proposed reductions, estimated to reduce spending by about $173 million next year.

Among other measures, officials proposed higher staffing ratios for hospital units with sicker and more aggressive patients, and lower ratios for more stable ones. The department said it is installing a new alarm system at Napa State Hospital, where a psychiatric technician was killed last year.

"We are making the changes that are long overdue," Cliff Allenby, acting director of the department, said in a prepared statement.

California's major corporations have rung up hundreds of billions of dollars in profits in recent years, but have paid only a few percentage points of those profits in income taxes here and in other states, according to a new nationwide study by several liberal organizations.

The compilation of corporate profits and state taxes was conducted by the Institution on Taxation and Economic Policy and Citizens for Tax Justice and released in California by the California Public Interest Research Group.

It covered 265 of the Fortune 500 corporations that reported profits for three straight years, 2008-2010, including 33 based in California.

Nationwide, the 265 firms had a combined $1.33 trillion in profits during the three-year period but on average, paid just 3 percent of those earnings in state corporate income taxes.

Yolo County Supervisor Mike McGowan has been elected to a one-year term as president of the California State Association of Counties, moving up the ladder from first vice president.

CSAC, based in Sacramento, is the chief lobbying arm for the state's 58 counties, and has been deeply involved in the realignment of some state services to counties, particularly incarceration and parole for low-level felons who had previously been sent to state prison.

Counties are receiving several billion dollars from the state this year to pay for the realaigned functions, which also include some health and welfare programs, but they are demanding that financing be guaranteed by a constitutional amendment.

Separately, the California School Boards Association announced that Jill Wynns, a member of the San Francisco Unified School District board, has been elected president of that organization, which is based in West Sacramento and is a major component of the Education Coalition that lobbies the Capitol on school finance issues.

Schools are targeted for major cuts if the triggers in the current state budget are pulled because revenues fall short of the budget's estimates. Gov. Jerry Brown has proposed a tax increase for next November's ballot that would restore some funding to the schools.

PHOTO CREDIT: Courtesy of Mike McGowan, Bee file 2009.

Gov. Jerry Brown will ask voters to raise nearly $7 billion annually by hiking taxes on upper-income earners and sales in California over the next five years, according to sources who have been briefed.

The Democratic governor is expected to file his tax initiative for the November 2012 ballot as soon as Friday. He wants the tax plan to help bridge next year's budget deficit, which the nonpartisan Legislative Analyst's Office pegs at $12.8 billion.

Under the measure, California would impose a half-cent sales tax increase starting in 2013 and an income tax hike on high-income earners starting retroactively with the 2012 tax year. Both would expire at the end of 2016.

The upper-income tax hike starts with a 1 percent increase at $250,000 for individuals and $500,000 for joint filers. A separate increase would charge 1.5 percent more on income between $300,000 and $500,000, followed by a third step of 2 percent on income above $500,000 for individuals (with amounts doubled for joint filers). That would increase the tax on millionaires from 10.3 percent to 12.3 percent.

The income tax change generally affects the top 1 percent of taxpaying households, a favorite target of Occupy protesters in recent months. In 2009, the 1 percent threshold of tax filers started at $400,635, according to the Franchise Tax Board.

Sources said the state would dedicate the money to school districts, intended as a way to convince voters who have said in recent polls that they would approve higher taxes for education. But the governor's proposal would still help the state balance its budget, without guaranteeing that the net effect would be an additional $7 billion for classrooms. It would also include some language limiting how much money gets spent on salaries and administration.

The governor also will ask voters to lock in an existing sales tax shift that pays local governments to take over state responsibilities such as housing inmates.

University of California regents approved raises for several high-level employees during their meeting Monday, as we reported in this morning's Bee.

Here are more details about the raises they approved. The first two batches are executives whose salaries are paid for with state funds:

• Two vice chancellors at UC Irvine and a vice chancellor at UCLA got raises of 9.9 percent. That brings salaries for Wendell C. Brase and Meredith Michaels at UC Irvine to about $247,000, and salary for Steven A. Olsen at UCLA close to $317,000.
• Joseph I. Castro was appointed interim dean of the graduate division of UC San Francisco and given a 7.5 percent raise, bringing his salary to $252,625.

The head lawyers of six UC campuses received raises ranging from 6.4 percent to 21.9 percent:

• Steven A. Drown, chief campus counsel at UC Davis, got a 21.9 percent raise, bringing his salary to $250,000.
• Diane F. Geocaris, chief campus counsel at UC Irvine, received a 14.3 percent raise, bringing her salary to $255,000.
• Carole R. Rossi, chief campus counsel at UC Santa Cruz, received a 13.9 percent raise, bringing her salary to $215,000.
• Michele Coyle, chief campus counsel at UC Riverside, received an 11.4 percent raise, bringing her salary to $215,000.
• Marcia J. Canning, chief campus counsel at UC San Francisco, received an 8.9 percent raise, bringing her salary to $255,000.
• Daniel Park, chief campus counsel at UC San Diego, received a 6.4 percent raise, bringing his salary to $250,000.

Regents also approved three compensation items for positions that are not paid for with state money:

• Lynda Rogers was appointed dean of University Extension at UC Santa Cruz, with a salary of $165,000
• A new position of chief strategy officer for the UC Davis Health System was created, to oversee the Medical Center and the School of Medicine. Salary for the position will range from $214,700 to $333,700.
• Vincent L. Johnson, chief operating officer of the UC Davis Medical Center, got a 23 percent raise, bringing his salary to $553,500. A staff report says Johnson is being recruited by another hospital offering him more than $650,000.

"We consider these retention efforts to be essential," UC President Mark Yudof said during the meeting at which regents approved a budget request asking the state for an 18 percent increase in funding. "I understand it's not a great time, but we can't really close down shop and say we're not going to make any effort to retain our best people."

More information on the compensation items approved Monday is available here.

A Fresno judge ruled last week that California's attempt to take $1 billion from First 5 commissions was illegal.

Gov. Jerry Brown and state lawmakers initially relied on the money in March to help balance a then-$26 billion shortfall. Two months later, state leaders backed away from the budget solution because First 5 commissions filed suit to block it. But Brown continued to defend the move in court.

Fresno Superior Court judge Debra J. Kazanjian determined in her ruling that the First 5 take was illegal because it required voter approval under the initial 1998 ballot measure, Proposition 10.

State drug enforcement agents sued Gov. Jerry Brown and his finance director, Ana Matosantos, on Wednesday over 206 layoffs they consider "obvious political retaliation" for endorsing Brown's Republican opponent in 2010.

As part of the June budget, the California Department of Justice lost $35 million for its Division of Law Enforcement. The cut will wipe out the Bureau of Narcotic Enforcement, which coordinates with local and federal law enforcement on drug and gang cases.

A similar $36 million cut is expected for the next fiscal year as California faces an estimated $12.8 billion deficit.

The Association of Special Agents filed suit Wednesday in Sacramento Superior Court, alleging that the governor "proposed and supported legislation to eliminate general fund support for special agents because of petitioner's political endorsement of Meg Whitman." The union also said Brown "infringed on the state attorney general's constitutional authority to investigate and prosecute crimes."

The agents' union is a subset of the California Statewide Law Enforcement Association, which backed Whitman in the 2010 gubernatorial race. CSLEA was at the center of a campaign gaffe that year when an unidentified Brown aide was caught on voice mail calling Whitman a "whore" for allegedly protecting public safety pensions in exchange for endorsements, referring to CSLEA.

Department of Finance spokesman H.D. Palmer called the allegation of political payback "baseless and without merit." Palmer said the state had little choice but to cut Department of Justice funding because lawmakers rejected additional taxes to balance the budget.

"This was a cut that was entirely avoidable," Palmer said. "It is not a reduction the governor proposed in his budget in January, and it is not a cut the governor proposed when he revised his budget in May."

Click here to read the agents' association lawsuit.

University of California regents have rescheduled the meeting that was canceled this week by threats of violence. They are now planning to meet on Monday, Nov. 28.

UC's governing board was never scheduled to vote on a tuition increase at the November meeting, though some groups planning protests distributed publicity material saying it was. Regents canceled the meeting scheduled for Wednesday in San Francisco, citing "credible intelligence" that planned protests could result in violence and vandalism.

The newly scheduled meeting will take place at four campuses -- in San Francisco, Los Angeles, Davis and Merced -- that will be connected by teleconference. Regents have expanded the time available for public comment, from 20 minutes to one hour. Members of the public can attend the meeting at any of the four locations.

The board is scheduled to discuss several financial matters, including its request to the state for a 2012-13 budget of $2.8 billion.

You can see the agenda and specific meeting locations on each campus here.

Most Californians are worried about decreased funding for the state's public colleges and universities -- but don't want to pay higher taxes to alleviate budget cuts and tuition increases.

Those are some findings from a new survey by the Public Policy Institute of California on state residents' views on higher education. Specifically, the survey found that:

• 62 percent of residents think public higher education in California is headed in the wrong direction
• 61 percent say affording college is a big problem for students
• 74 percent say there is not enough state funding for higher education
• 65 percent say that public colleges and universities have been affected a lot by budget cuts

But it also found that:

• 69 percent are opposed to increasing student fees to maintain current funding
• 52 percent are unwilling to pay higher taxes to maintain current funding

So how should California come up with money for colleges and universities?

The survey says that 59 percent of Californians would rather see the state spend more on public higher education "even if this means less money for other state programs."

It says 52 percent favor admitting more out-of-state students who pay higher tuition, though support for that idea drops to 20 percent if it means admitting fewer students from the Golden State.

And one idea that garners support is "a hypothetical statewide bond measure to pay for construction projects in the state's higher education system." Fifty-eight percent of those surveyed said they would vote for such a measure, which would require a simple majority vote to pass.

Read the full survey at this link.

Gov. Jerry Brown's finance director said Wednesday that some mid-year cuts are "likely," increasing the possibility the state will slash education and social services in the coming months.

Finance Director Ana Matosantos issued her statement just as nonpartisan Legislative Analyst Mac Taylor presented his report projecting that California will fall $3.7 billion short in revenues this fiscal year.

Under the June budget deal, the state must impose "trigger" cuts to a variety of education and social services programs if it falls more than $1 billion shy in revenues. To determine the state's revenue picture, Matosantos will use either her own department's forecast or the analyst's, whichever is rosier.

"The LAO report acknowledges the tough work that has been done to cut the state's deficit in half, but that there is more tough work ahead," Matosantos said in a statement. "The budget the Governor signed recognized that economic uncertainty could force the trigger cuts to take effect. Some level of trigger cuts will likely occur, but the exact amount will be known in December."

Matosantos will release her department's forecast by December 15, but her statement today serves as an early acknowledgment that the state is heading toward mid-year cuts. Legislative Analyst Mac Taylor said Wednesday that it remains possible that Finance could project as much as $2 billion more or less in revenues than he did.

At his press conference Wednesday, Taylor seemed to discourage lawmakers from taking action to avoid trigger cuts in light of a nearly $13 billion hole staring at them in 2012-13.

PHOTO CREDIT: Ana Matosantos. The Sacramento Bee/Hector Amezcua

It didn't take long Wednesday for the state's partisan budget battle to reignite.

Fresh off a new Legislative Analyst's Office report that paves the way for mid-year cuts in education and social services, Democrats called for additional taxes and Republicans said lawmakers must rein in spending. The report also pegs the state's deficit at nearly $13 billion through June 2013.

The Assembly's Democratic budget chairman, Bob Blumenfield, said in a statement that the analyst's report "acknowledges that we made great progress last year but validates the need to raise revenues to finish what we started."

"We need solutions that protect education, create jobs and put California on the path to stability," he added. "That can't be achieved through cuts alone or by one party governing alone. New revenues can prevent cuts that shock the conscience, hurt our economy and compromise our morals as a civilized society."

His GOP budget counterpart, Assemblyman Jim Nielsen, R-Gerber, countered by saying taxes are unnecessary.

"The Legislative Analyst's Office report indicates, as predicted, that the budget passed by Democrats with only a majority vote was overly optimistic and based on shaky assumptions," Nielsen said in a statement.

"It indicates that a lot more needs to be done to get California's budget under control, and that does not happen through tax increases," he added.

On the Senate side, Majority Leader Ellen Corbett, D-San Leandro, called for reopening budget talks to avoid additional cuts to K-12 schools and higher education. Absent legislative action, the state could impose up to $2 billion in auto-pilot cuts because revenues have fallen short of expectations.

"The Legislature and governor should explore all of our available options, and do everything we can, to prevent mid-year cuts," Corbett said in a statement.

California State University trustees today approved a 9 percent tuition increase to take effect this fall, university spokeswoman Claudia Keith said, increasing the cost of attending a state college by $498 a year.

The vote came after trustees reconvened their meeting in a different room following an outburst of protests in the normal meeting room at the CSU Chancellor's Office in Long Beach. Protesters broke a glass door, injuring three police officers, said CSU spokesman Erik Fallis. One of the officers has been transported for medical care, he said.

Four people were arrested, Fallis said. One is a Cal State Long Beach student, two are San Diego State students. Fallis did not identify the fourth person, but said he was arrested for breaking the glass door.

The California Faculty Association -- the union that represents CSU professors -- sent an email report saying:

Police pepper sprayed the front door of Chancellor Reed's HQ, where the trustees were meeting to push the students out. Faculty members are trying to leave the building now as riot police are marching toward the protest.

A group called ReFund California, which is backed by several large labor unions, had pledged to protest at today's trustees meeting. Many members of the group spoke before the chaos erupted, calling on Cal State leaders to support higher taxes on corporations and the wealthy to fund public education and other services that have been reduced as the state has struggled with ongoing budget deficits.

Check back for continued updates to this story.

PHOTO CREDIT: An injured California State University police officer stands with other police near the entrance to the California State University Board of Trustees meeting in Long Beach. A struggle erupted between demonstrators and police Wednesday as trustees of the huge CSU system met to vote for another tuition hike. Associated Press/Nick Ut

California would impose $2 billion in mid-year "trigger" cuts next month, mostly through K-12 school reductions, under a new revenue forecast issued this morning by the nonpartisan Legislative Analyst's Office. The LAO also said the deficit for the year beginning July 1, 2012 would be nearly $13 billion.

The analyst's report is not the sole determinant of whether the state will impose those cuts, but it is one of two tools the Department of Finance must rely upon before deciding whether to slash spending. The finance department will issue its own forecast in December.

The Analyst said the state will not receive $3.7 billion of the $4 billion revenue bump that Gov. Jerry Brown and lawmakers optimistically relied upon to help close the budget in June. The enacted budget projected the state would receive $88.5 billion in revenues and transfers; the analyst says it will only get $84.8 billion.

The Department of Finance said this week that California was running $1.3 billion behind revenue projections for the first four months of the fiscal year, from July to October. State Controller John Chiang pegged the revenue shortfall at $1.5 billion.

The University of California has canceled the meeting of its governing board scheduled for later this week out of fears that protests against UC regents could turn violent.

Protests by labor unions and student groups are not uncommon at regents meetings, but UC officials announced today that they had reason to believe the actions planned for the meeting on Wednesday and Thursday in San Francisco would be unusually disruptive. UC decided to postpone the meeting after law enforcement officials disclosed credible threats.

"From various sources they had received information indicating that rogue elements intent on violence and confrontation with UC public safety officers were planning to attach themselves to peaceful demonstrations expected to occur at the meeting," said a joint statement from Regents Chair Sherry Lansing, Regents Vice Chair Bruce Varner and UC President Mark Yudof.

"They believe that, as a result, there is a real danger of significant violence and vandalism," the statement says.

The statement does not name any individuals or groups that posed a threat.

A union-backed group called Refund California planned to organize buses to bring people from college campuses across the state to the regents meeting. The group wants UC regents -- many of whom serve on corporate boards -- to support the its proposal to raise taxes to alleviate the budget cuts public universities have faced in recent years.

UC has not yet scheduled a new date for the meeting, at which regents were to discuss the university's 2012-13 budget proposal.

The budget news remains downbeat, but the state Department of Finance reported Monday that the state's revenue gap is less than what Controller John Chiang said last week.

The state is $1.275 billion behind in revenues for the first four months of the fiscal year, or 5.1 percent. Chiang said last week that the gap was $1.5 billion, or 6.2 percent. Department of Finance totals typically vary because of a delay in when agencies report their cash totals to the controller.

For the month of October alone, Finance said the state was $608 million short, or 10.5 percent.

Under the budget signed by Gov. Jerry Brown, California must impose mid-year cuts if forecasters believe the state will fall at least $1 billion in revenues by the end of June 2012. The latest Finance report emphasized that the forecasts will take into account not only the existing four-month gap, but what economists believe will transpire over the next eight months.

The nonpartisan Legislative Analyst's Office is expected to release its forecast later this week.

California State University trustees will vote Wednesday on raising fees by $498, or about 9 percent, for fall 2012. That would bring annual tuition for undergrads at CSU's 23 campuses to $5,970, not including books, room or board. Most campuses charge an additional $1,000 in local fees.

The tuition increase is part of the university's larger plan for its 2012-13 budget. Trustees are also voting Wednesday on a proposal to ask the state for $2.4 billion in funding next year, an increase of $330 million over this year. If all of it comes through, CSU will not implement the tuition hike.

"We won't have to increase tuition for the fall if the state provides adequate funding in next year's budget," Chancellor Charles Reed said this morning in a phone call with reporters.

Universities make budget requests to the state every year but it's been many years since they received anything close to what they requested. For the current year, the state cut both CSU and University of California by $650 million. The state will cut the two systems by another $100 million each next month if mid-year budget projections are not met. A $750 million cut would translate to a 27 percent drop in funding for CSU compared with last year, Reed said.

Read CSU's tuition proposal on page 20 of the meeting agenda posted here.

California has fallen $1.5 billion behind in revenues through the first four months of the fiscal year, according to state Controller John Chiang, amplifying fears the state will impose deeper budget cuts this winter.

For the month of October, Chiang said California was $810.5 million behind what was expected, or 16.3 percent. Notably, the state missed its personal income tax estimate by $451 million, or 12.9 percent, which the Franchise Tax Board attributed to both lower withholdings and estimated tax payments.

The state also faced spending pressures through the first four months of the year. Chiang reported that California spent $1.7 billion more than budget writers expected.

Under the budget deal Gov. Jerry Brown signed in June, the state will automatically cut a variety of programs depending on how deep budget analysts determine the revenue shortfall will be. If the state falls between $1 billion and $2 billion short, the budget calls for cuts in higher education, social services and public safety. If the state falls more than $2 billion short, the state will cut K-12 schools and community colleges. More on this here.

A state board restocked with Gov. Jerry Brown appointees approved a $150 fire fee Wednesday on rural homeowners this fiscal year, continuing a drive by the Democratic governor to raise $50 million from those residents.

Most property owners will receive a $35 discount for living in a fire district; an estimated 90 percent of structures qualify for that savings. But their remaining fee, $115, will still be significantly higher than what rural property owners would have paid under a plan the state Board of Forestry and Fire Protection passed in August.

An estimated 800,000 structures in rural areas, including homes and office buildings, will be subject to the fee. The state is responsible for wildfire prevention and protection in those areas, and the governor said this summer that suburban growth on formerly rural lands had driven up costs for the state.

The University of California will not raise tuition this school year even if state budget triggers are pulled next month and the system loses another $100 million, UC President Mark Yudof said today.

His announcement puts UC in line with CSU and the community colleges, which earlier had waved off potential mid-year tuition increases if state budget triggers are activated.

The state budget adopted in June cut UC by $650 million this year. UC responded over the summer by raising tuition for the fall by about 18 percent over last year.

Brown administration officials will decide next month whether cash receipts through the first part of the fiscal year and revenue forecasts for the first half of 2012 warrant further cuts, including $100 million to each higher education system.

The wave of anger at banks that has swept the country with the recent "Occupy" movement is coming to California college campuses next week.

A union-backed group calling itself "Refund California" is organizing protests on Wednesday at more than a dozen college campuses, including Sacramento State and UC Davis.

The group argues that banks created the country's economic collapse that decimated state budgets and led to massive tuition hikes in recent years. It is calling on leaders of the public universities to pledge support for higher taxes on corporations and wealthy individuals as a way to restore funding for jobs and education.

The group sent letters today to University of California regents and trustees of the California State University, asking them to sign the following pledge:

Assembly budget officials expect California to face a deficit of about $5 billion to $8 billion next fiscal year, higher than the $3.1 billion projected by Gov. Jerry Brown, according to a legislative memo obtained by The Bee.

The memo itself doesn't explain why Assembly officials believe the deficit will be larger than once projected, but one budget source said it was due to a variety of factors such as uncertainty over legal challenges, additional demand for public programs and a less optimistic view of the economy in the next fiscal year.

At the same time, the "Budget Recap" from Assembly Budget Committee Chairman Bob Blumenfield, D-Woodland Hills, downplays a first-quarter lag in tax revenues of more than $650 million.

To help balance the budget last summer, lawmakers and Brown optimistically decided the state would receive $4 billion in additional revenue in 2011-12. If budget experts determine in mid-December that the state will fall at least $1 billion short of that mark, the state must impose so-called "trigger" cuts to social services and possibly education, depending on the depth of the shortfall.

Controller John Chiang said Wednesday that lawmakers who fear the prospect of automatic mid-year budget cuts should find alternatives soon.

In a meeting with The Bee Capitol Bureau, Chiang wouldn't predict whether "trigger" cuts to education and social services would happen. Under the budget approved by Gov. Jerry Brown and lawmakers, California is required to impose up to $2.5 billion in cuts if fiscal analysts determine in the next few weeks the state will fall short in revenues this fiscal year.

Chiang reported last month that California is running $705.5 million short through the first quarter of the fiscal year, from July to September. Some budget experts have downplayed that shortfall, saying the amount received so far is less important than what forecasters believe California will take in from January to June based on economic indicators.

The Democratic controller credited the "trigger" cuts for adding certainty to the state budget in unpredictable times, noting that credit rating agencies have looked favorably on that mechanism. But he knows many Democratic lawmakers, who agreed to triggers only at Brown's urging, don't feel the same way.

"As I share with a few legislators when I talk to them today, I say if you don't like the fact that we may have triggers, then you better offer an alternative, and you should offer that alternative pretty quickly," Chiang said.

Counties and local law enforcement groups filed an initiative today that would require the state to continue paying them billions of dollars each year for new duties such as housing inmates and overseeing parolees.

The measure, dubbed the "Local Taxpayers, Public Safety and Local Services Protection Act of 2012," does not ask voters to raise taxes. It would enshrine a new arrangement in which California gives local governments a 1.06-cent share of the state sales tax, worth about $5.1 billion, as well as a portion of state vehicle taxes.

The money would pay for the state's "realignment" plan that began Oct. 1, which transferred significant functions to the local level. The most controversial involves redirecting new inmates and parolees to county supervision. Local officials want a constitutional guarantee they will continue receiving money to carry out those duties, as well as functions such as mental health care, substance abuse treatment and child welfare services.

The coalition includes the California State Association of Counties, California State Sheriffs' Association and Chief Probation Officers of California. Leaders of the groups have said that even though their initiative does not include tax hikes, they are still willing to join a broader team of school officials and business leaders working with Gov. Jerry Brown to ask voters for a tax hike next November.

Gov. Jerry Brown scored a budget win Thursday as the Obama administration approved a major share of Medi-Cal cuts that health care providers and patient advocates said would cut off medical access to the state's most vulnerable residents.

The federal Centers for Medicare & Medicaid Services (CMS) will allow the state to cut reimbursement rates by 10 percent this fiscal year for a variety of Medi-Cal providers, including physicians, pharmacists and optometrists. The state Department of Health Care Services says it will not cut rates paid to pediatricians or home health providers.

California Medical Association CEO Dustin Corcoran said Thursday his group will file suit asking the court to immediately block this latest round of Medi-Cal cuts.

The state expects to save a significant part of the projected $623 million associated with the rate cut, though it may fall short due to excluding some services.

A monthly magazine published by Wall Street Journal takes a stab this month at explaining California's complex and perhaps dysfunctional budgetary politics - and gets it dead wrong.

The description of the machinations over the state budget is contained in an article about Nicolas Berggruen, the 50-year-old billionaire who, through his private foundation, is financing "Think Long California," a consortium of civic and political leaders seeking solutions to governance roadblocks.

As writer Stacy Meichtry describes it in WSJ Magazine, Berggruen convened the group a year ago as part of his interest in global governance issues, and it responded thusly:

"The group recommended creating a 'rainy day fund' requiring the state to set up reserves when tax revenues are running high. Another suggestion: Allow California's gridlocked assembly to approve the state's budget with a simple majority rather than a two-thirds majority. With some arm-twisting from Berggruen's group, the assembly passed both initiatives into law. Tax hikes and budget cuts passed under the simple majority rule have so far helped California to cut its deficit by nearly two-thirds."

Say what?

The "rainy day fund" is contained within a ballot measure that was part of the 2010 budget deal, but the Legislature's Democrats have passed a bill that, among other things, would postpone the vote until 2014 (and make no bones that they'd like to kill it altogether). The simple-majority vote wasn't approved by the "assembly," which Meichtry apparently uses as the name for the Legislature, but rather by voters in 2010 in a ballot measure sponsored mostly by public employee unions. And it didn't result in any tax hikes, nor has the state's budget deficit been cut by two-thirds.

That's about three strikes and you're out in the accuracy department.

We've yet to see any recommendations from "Think Long California," but it will reportedly unveil some proposed reforms later this fall.

In a new report, Treasurer Bill Lockyer estimates California will devote 7.8 percent of its budget to paying off debt this fiscal year, more than twice the share in 2003-04.

Eight years ago, the state devoted 3.4 percent of its general fund to debt.

The spike in debt costs comes after California voters agreed to borrow more right before the state economy suffered a historic economic downturn, according to Lockyer's report.

Former Gov. Arnold Schwarzenegger and lawmakers championed a $37 billion public works bond package in 2006, near the height of the housing bubble in California when tax dollars flowed mightily into state coffers. Since 2004, voters also have approved borrowing for children's hospitals, stem-cell research and high-speed rail. The state is also paying off bonds that Schwarzenegger and lawmakers used to balance the budget in 2003-04.

State general fund revenues have dropped from $105.3 billion in 2006-07 to an estimated $87.2 billion in 2011-12. Borrowing cost the state $2.5 billion in 2003-04; this year, it will cost $6.8 billion.

Lockyer also attributed the debt service rise to the June 30 expiration of temporary tax hikes and a shift of sales taxes to local governments, both of which will reduce the amount of money available to the state general fund this fiscal year.

The state's debt share will actually rise higher in 2012-13 to 9.2 percent even without any new borrowing, according to Lockyer's report. That's because the state must pay back $1.9 billion next year that it borrowed to balance the budget in 2009.

Note: Borrowing cost figure for 2011-12 has been corrected.

In a lawsuit that could change ground rules on California budget writing, 10 Southern California cities and their redevelopment agencies are challenging methods used by state lawmakers in the budget process.

The cities filed suit Monday with the Sacramento Superior Court alleging that California's new plan to get $1.7 billion from redevelopment agencies violated various laws guiding legislative procedures. Among the cities involved are Cerritos, Carson, Commerce and Paramount.

The California Supreme Court has already agreed to hear arguments in a separate fast-track case involving the California Redevelopment Association and League of California Cities. The state's highest court took the unusual step of bypassing lower courts in accepting the case, which it intends to decide by January. In doing so, the court temporarily halted most of the redevelopment plan enacted by lawmakers and Gov. Jerry Brown in June.

The case at the Supreme Court alleges that California has violated protections for local government funding, and the Cerritos case makes the same arguments. But attorney Jeffrey M. Oderman said his clients filed a new case this week because they believe they have additional arguments that may go unheard in the Supreme Court review.

In another budget-related lawsuit, the League of California Cities went to Sacramento Superior Court on Wednesday to pursue $130 million in vehicle taxes that cities previously received from the state.

Gov. Jerry Brown and Democratic lawmakers shifted those funds to local governments as part of the June budget to pay for public safety grants. It was a minor piece of the governor's $5.5 billion "realignment" plan to transfer state responsibilities to the local level.

The League of California Cities said the maneuver shortchanges city police departments and proves particularly harmful to four newly incorporated cities in Riverside County that were depending heavily on the money to finance their operations.

League executive director Chris McKenzie said he believes the budget violates three parts of the state constitution, including a 2010 voter-approved ballot measure that local governments sought to protect their payments from the state. The League has already filed suit against the state to block a budget move that would generate $1.7 billion from redevelopment agencies.

The state's education coalition faces a rare split in the wake of a June budget that comforted teachers but alarmed district officials.

Two of the state's largest school districts - Los Angeles and San Francisco - joined school boards and administrators Wednesday in suing California for $2.1 billion in education funding. Notably, the California Teachers Association was missing from the lawsuit after previously standing with the same groups in Sacramento press conferences advocating for school funding.

CTA President Dean Vogel questioned this afternoon why those education groups are filing suit at this time.

"An outside observer would have to be curious as to why a lawsuit supposedly protecting Proposition 98 doesn't have CTA as part of the group," Vogel said. "We're always fighting to maintain the integrity of Prop. 98, and it's kind of interesting. We believe this lawsuit is premature and unnecessary."

School board officials and administrators held a press conference today to explain their lawsuit against California for $2.1 billion in education, which we outlined yesterday.

If the suit filed in San Francisco Superior Court is successful, any remedy would likely impact future budgets rather than the current 2011-12 plan, according to Abe Hajela, general counsel for the California School Boards Association. The plaintiffs are not seeking an injunction, but a recalculation of the Proposition 98 formula that determines how much K-12 schools and community colleges receive each year.

Hajela noted that the $2.1 billion could be repaid in future years as "settle-up" money, similar to other supplemental funds that the state provides schools now as the result of prior lawsuits. The court may not resolve the matter until at least next summer. By that point, lawmakers probably will have altered the 2011-12 education budget being challenged in either a mid-year budget session or as part of next year's budget talks.

California faces another budget-related lawsuit today, this time over cuts in services provided to 250,000 developmentally disabled residents.

The Arc of California and the United Cerebral Palsy Association of San Diego want to block a 4.25 percent cut in state reimbursement for services to people with mental or physical disabilities. The groups also want the U.S. District Court in Sacramento to prevent the state from furloughing such services 14 days a year and introducing a half-day billing definition.

Updated at 11:30 a.m. with comments from the California School Boards Association.

Local school officials said today they will sue California over $2.1 billion in education funding they believe state leaders should have provided in the June budget.

The California School Boards Association, the Association of California School Administrators and school districts will hold a press conference Wednesday to explain their case. The San Francisco Unified School District is among those participating.

School groups face a Wednesday deadline to challenge the state budget, according to CSBA assistant executive director Rick Pratt.

School administrators have bristled at the state budget ever since Democratic lawmakers and Gov. Jerry Brown brokered a last-minute deal with the California Teachers Association in June. Teachers won job protections and restrictions on how school districts can cut their budgets if the state determines in December that revenues will fall short of expectations.

The backdrop to that deal was the fact that the CTA, one of the most powerful forces in the Capitol, could have filed the same suit against the state that CSBA and ACSA are announcing this week.

California may be mired in recession, but it's still collecting state taxes that are markedly higher, in proportion to its population, than the nation as a whole, according to a new data release by the U.S. Census Bureau.

California has 12.1 percent of the nation's population but during the second quarter of 2011 accounted for 15.9 percent of state tax collections with $35.9 billion. That was $2.4 billion more than in the second quarter of 2010, but more than $3 billion lower than in 2008, before the housing market collapsed and the state spiraled into recession.

The numbers come from the Census Bureau's quarterly report on state and local finances. Overall, states collected $226 billion in taxes during the second quarter and local governments added another $108.5 billion. The revenues include both taxes for general purposes and those restricted to special purposes, such as those on fuel.

California's second quarter total was influenced by the expiration of a temporary personal income surtax at the end of 2010, but the overall quarter-to-quarter increase in revenues indicate that slightly improved economic conditions offset the loss. Even so, income taxes accounted for 46.7 percent of total California collections.

Two other temporary tax increases, on sales and automobiles, expired on June 30. Gov. Jerry Brown wanted to extend all of the temporary taxes, which were first enacted in 2009, to balance the state budget, but was unable to gain enough Republican votes to put the extensions on the ballot this year. He's now planning an initiative tax measure for the November, 2012, ballot, but has not settled on what the mix of levies would be.

Senate GOP leader Bob Dutton has asked Gov. Jerry Brown to hold off pushing his corporate tax package in the final two days of the legislative session and instead call a special session on jobs and tax reform.

"There is nothing more complex than tax reform, and trying to jam through a proposal on the last day of session without transparency or input from the public and tax experts is irresponsible," the Rancho Cucamonga Republican wrote in a letter to Brown.

The Democratic governor held a press conference early this afternoon to announce that he had reached a deal to win the two GOP votes in the Assembly needed to pass his proposal, which was first unveiled last month. But Brown still needs the votes of at least two Senate Republicans in order to pass the plan, which includes a change to corporate tax calculations that is projected to raise about $1 billion annually that would be directed to specific tax breaks.

Dutton was noncommittal when asked whether there was support in his caucus for the governor's plan, saying "I can't say I'm not going to support something I haven't even seen." But language used in the letter doesn't suggest much interest in supporting the package in its current form-- it describes Brown's plan as a "tax increase proposal that was developed behind closed doors without any input from Senate Republicans."

Republican Sen. Bob Huff, vice chair of the Senate Budget Committee, told The Bee he'd have to "see what's actually in there" before taking a stance.

But Brown responded to Dutton's letter by saying Californians "need action now."

"Mr. Dutton should join his colleagues in the Assembly and help pass this bipartisan jobs plan. Don't talk about tomorrow when you can act today," he said in a statement.

Editor's note: This post was updated at 3:24 p.m. with comments from Brown.

Gov. Jerry Brown celebrated a corporate tax deal Thursday with the Assembly, but he acknowledged he still has to persuade enough senators to support the package.

The agreement would require companies to base their corporate tax calculations only on the share of sales they have in California, raising about $1 billion annually starting in the 2012 tax year, mostly from out-of-state firms. It would redirect that money to tax breaks for in-state businesses and individual taxpayers.

Brown and lawmakers hailed the plan as a jobs creator, though they offered no projections on the extent of its economic impact. The Democratic governor was joined by GOP Assemblymen Nathan Fletcher and Cameron Smyth, whose votes would put the plan over the top in the Assembly if all 52 Democrats support the package.

"This is a very important coming together of very disparate individuals and philosophical views to do something for California," Brown said. "So instead of just acting as Democrats or Republicans, the people you see here behind me are acting as Californians first."

Under the plan, Californians would receive an increase in the personal income tax standard deduction, jumping from $3,769 to $4,769 for individuals and $7,538 to $9,538 for couples. That change would offer relief mostly to low- and middle-income families who do not itemize their deductions.

Gov. Jerry Brown has scheduled a 12:15 p.m. press conference to announce a corporate tax deal with Republicans, but it remains to be seen whether he has enough votes from the Senate GOP.

The deal would require companies to base their corporate tax calculations only on the share of sales they have in California, raising about $1 billion annually starting in the 2012 tax year, mostly from out-of-state firms.

In exchange, start-up manufacturers will receive a 4 percent sales tax reduction on equipment purchases, while other firms will get a 1 percent reduction, according to sources who would not be named because they did not want to get ahead of the governor's announcement.

The proposal also includes tax relief for individuals with a roughly 27 percent increase in the standard personal income deduction, according to a source. Finally, the plan contains exemptions on the first $50,000 in business income for small businesses.

Brown has been negotiating primarily with Assemblyman Nathan Fletcher, R-San Diego. But sources said it is unclear if he has Senate Republican support.

The package will also wrap in a five-year extension in the state's film tax credit, a proposal whose length had been disputed between the Senate and the Assembly, sources said.

State Attorney General Kamala Harris has rejected a GOP request that she opine on whether the state budget signed by Gov. Jerry Brown is constitutional.

Republican lawmakers asked Harris last month to examine whether the budget complies with the constitution's requirements for education funding. Supervising deputy attorney general Susan Duncan Lee wrote in response that Harris' office could not do so because it will likely have to represent the state should someone sue on those grounds.

Interestingly, Lee suggested in a Tuesday letter that the budget is destined for a court battle.

"Given the budget challenges facing the state, we believe the education funding measures embodied in the current budget package are highly likely to end up in litigation," Lee wrote. "If that happens, our office will be bound to represent all the likely defendants, including the Governor's Office, the Department of Finance, and the state Controller's Office."

As Gov. Jerry Brown and legislative leaders dicker over a package of business tax incentives aimed at boosting the state's stagnant economy, an oversight office created by Senate President Pro Tem Darrell Steinberg has concluded that previous corporate tax breaks cost many billions of dollars more than anticipated.

The report, issued Thursday by the Senate Office of Oversight and Outcomes, provides ammunition for tax reformers who have called for closing corporate loopholes to raise state revenues and who are leery of opening new ones.

Brown has proposed to change the way multistate and multinational corporations are taxed to raise revenues, then use the proceeds for targeted tax breaks to spur job-creating investment. But with the 2011 legislative session in its final hours, he's encountered resistance from Republicans whose votes would be needed for the tax swap.

Meanwhile, Steinberg's investigators, who are mostly former Capitol reporters, have concluded that "some California tax breaks are acting as blank checks, costing the state billions of dollars more than anticipated when they first were put in place..."

They estimate that over the last decade, 10 major corporate tax breaks have cost the state treasury $6.3 billion more than estimates when they were enacted, including $1.3 billion more in 2010-11.

By Kevin Yamamura and Dan Smith

In a deal with state lawmakers and brick-and-mortar stores, Amazon tentatively agreed Wednesday to stop fighting a requirement that internet retailers collect sales tax on California purchases.

Under the handshake deal, Amazon won a delay until at least September 2012 but will eventually collect state sales taxes.

The arrangement could lay the groundwork for a national online sales tax law. Amazon and major brick-and-mortar retailers like Wal-Mart and Barnes & Noble agreed to lobby Washington over the next 11 months for an internet sales tax law that applies across 50 states.

"Basically, Amazon will get a safe harbor to lobby Congress and the retailers will go hand-in-hand with them to adopt a law that will apply to all of the states," said Assemblyman Charles Calderon, D-Whittier, who worked on the compromise.

If no federal deal emerges by July 31, 2012, Amazon would have to begin collecting California sales taxes starting on Sept. 15, 2012. State lawmakers intend to pass a new bill in the next two days that would delay implementation of the online sales tax law until that date, according to Calderon and several sources.

If Congress strikes a deal by July 31, 2012, online retailers would begin collecting taxes starting on Jan. 1, 2013 under whatever federal requirements are approved.

The compromise means that California would not collect $200 million in tax revenues that the state had projected in the current 2011-12 fiscal year. The state has already fallen behind its projections for total revenues in June and July.

"We're well into the fiscal year and there's no money coming in anyway," Calderon said.

As California prepares to ask investors for $5.4 billion next week, state Treasurer Bill Lockyer is none too pleased with a last-minute bill related to automatic budget cuts.

Lockyer had to amend his disclosure statement to explain that lawmakers may require Gov. Jerry Brown's administration to consult on alternatives to as much as $2.5 billion in "trigger" cuts under Assembly Bill X1 20. Brown and lawmakers agreed in June to prescribe cuts to schools and other public programs that would take place if the state falls behind its optimistic revenue projections.

Brown opposes the bill, and the Senate budget committee did not approve the measure Tuesday night in its first examination.

"We like the triggers fine just the way they are," said Lockyer spokesman Tom Dresslar. "We would have preferred that the Legislature not monkey around with them. The triggers were one of the strongest features of the budget. It's unfortunate there's a possibility they will be weakened."

Democratic lawmakers say the blowback is much ado about nothing. Sen. Mark Leno, D-San Francisco, chairman of the Senate budget committee, said before yesterday's hearing that the bill allows for better planning and more disclosure. He noted that lawmakers always have the power to change cuts mid-year, and this bill serves to underscore that point.

Lagging tax revenues are making California officials nervous about "trigger" budget cuts to schools and services that appear likely unless more money flows into state coffers or the economic outlook improves.

A newly amended Democratic bill would require the Department of Finance to give at least 10 days notice if it determines the state must install various cuts in December. The proposal, Assembly Bill X1 20, also would require Finance to "consult" with lawmakers on alternatives to cuts already prescribed in the existing budget act.

Under existing law, Gov. Jerry Brown's finance officials must determine in December whether California is on track to receive $4 billion more in revenues over the 2011-12 fiscal year. If not, the budget requires the state to impose as much as $2.5 billion in cuts to K-12 schools, higher education, public safety and social services.

The state fell $541 million short of July expectations, and there are already signs the state may also miss its August projections.

Gov. Jerry Brown and legislative Democrats are seeking a firefighting fee on rural homeowners significantly higher than the maximum $90 charge passed last week by California's fire board.

The new proposal would impose a minimum $175 per house fee, with an additional charge on land, starting at $1 per acre for the first 100 acres. Homeowners who live in fire districts, which includes 94 percent of the roughly 730,000 structures being charged, would qualify for a $25 discount.

Brown's Department of Finance expects the state to begin sending bills to homeowners in spring 2012. The governor said previously that California residents have increasingly moved into wild land areas in recent years, and he considered it fair to have them help pay the state costs of fighting wildfires.

Democrats consider the proposal a "clean up" measure of a budget bill intended to raise $50 million in the first year and $200 million annually thereafter. When Brown signed the original plan, Assembly Bill X1 29, he signaled that the proposal was flawed because it didn't allow the state to use fee dollars to fight wildfires.

That bill capped the charge at $150 and lacked acreage fees. The state Board of Forestry and Fire Protection last week approved a $90 fee with significant exemptions, such as a $45 discount for those who already pay district charges. That proposal would have raised a fraction of the $50 million that lawmakers had counted on.

Under Brown's latest proposal, the board would have to scrap last week's board plan. The new fee is contained in AB X1 24 and SB X1 7. Despite the higher fee, the Department of Finance believes it would still raise the same amounts of money after further analysis of rural home and land ownership. The bills require a majority vote.

The Howard Jarvis Taxpayers Association has vowed to fight the measure in court, saying it violates Proposition 26, a voter-approved measure that further restricted fees that could be passed by a majority, rather than two-thirds, of the Legislature.

By Dale Kasler and Torey Van Oot

Amazon.com is offering to bring 7,000 distribution center jobs to California in order to ward off a ballot-box fight over the state's new Internet sales tax, sources with knowledge of the talks said today.

While discussions are still preliminary, sources said legislative leaders have received an Amazon-inspired plan that would give the online retailer a two-year moratorium on the new tax. In return, Amazon would bring 7,000 jobs to the state, these sources said.

Amazon so far has refused to collect the tax, signed into law in June by Gov. Jerry Brown, and is collecting signatures to challenge the law in a referendum next June. Legislative Democrats, meanwhile, launched an end-around last week by pushing a new version of the law that wouldn't be subject to referendum. The new version would need two-thirds support of both houses, which means votes from Republicans.

It's unclear if the plan will take hold. Senate President Pro Tem Darrell Steinberg, D-Sacramento, said his "first priority" is to pass AB 155, the new version of the law.

"The state is owed $400 million over the next two years that we cannot afford to lose," he said.

The state believes the new law would generate $200 million a year in tax revenue.

Amazon officials couldn't be reached for comment. But George Runner, a member of the Board of Equalization and an Amazon ally, said he's encouraged that talks are proceeding.

"Whatever comes out of it has got to be about jobs," said Runner, whose agency is in charge of collecting sales tax from retailers. "How can we help Amazon create a bigger presence in California?"

Amazon has pledged to create distribution-center jobs in at least two other states that have agreed to a sales tax holiday - South Carolina and Tennessee.

The California Retailers Association, a coalition of big-box stores that has been pushing for the online tax, said it had seen Amazon's offer and deemed it unacceptable.

"We don't think it's a serious compromise, a serious proposal," said Bill Dombrowski, the association's president. "I don't think it's going to go anywhere."

He said the jobs offered by Amazon don't make up for the jobs brick-and-mortar retailers are losing because of the price advantage Amazon retains as long as it doesn't collect sales tax.

The state Board of Equalization today posted the quarterly list of California's biggest sales and use tax delinquents.

State law requires the board to make the list public every three months in an effort to encourage the scofflaws to pay up. The board said in a prepared release today that the state has received about $5.2 million from 37 taxpayers since the program began.

This quarter's Top Ten list is headed once again by Downey-based California Target Enterprises, which owes $18.3 million. Closer to the Capitol, the Lyon's at 30th and J in Sacramento placed 14th, owing the state about $4.1 million. That's a lot of burgers. Management at the restaurant has said the store is no longer affiliated with the company which owes the state.

See the full list here.

Editor's Note: This post has been updated to reflect that the Board of Equalization, not state Controller and Board of Equalization member John Chiang, released the list of tax scofflaws. Updated 12:10 p.m. Aug. 31, 2011.

A corporate tax proposal that Gov. Jerry Brown championed Thursday retains a special provision worth between $32 million to $40 million annually for major cable companies.

The "adjustment," as a Brown document calls it, would apply to cable firms that have spent at least $250 million on payroll, property, services and other expenditures in California in a given year. The proposal would cost $32 million in 2012-13 revenues, increasing up to $40 million in 2015-16.

Under the Brown proposal, the state would require multi-state firms to calculate their tax burden based only on their proportion of sales in California. It would also require companies to move to a uniform method of calculating sales based on transactions in California.

Cable companies and other firms that sell "intangible goods," whether it be television programming or computer software, have historically been able to exclude some sales as part of their tax liability. They have argued that many of the costs of production are borne elsewhere, and therefore should not be taxed in California.

The Brown proposal eliminates the protection for intangible goods. But to satisfy cable firms, who say they employ more than 44,000 Californians, the measure offers an industry-specific formula in which companies can state that half of their California sales are not taxable. Companies in other intangible goods industries, including Microsoft, are not protected.

The provision was first contained in Senate Bill 116 by Sen. Kevin de León, D-Los Angeles, upon which Brown's tax proposal is based. The governor has chosen to retain it, according to his revenue estimates.

The Franchise Tax Board announced Thursday that state income tax brackets, credits and deductions for 2011 have been adjusted, as state law requires, for a 2.7 percent inflationary factor, three times as large as last year's adjustment.

The 2011 factor is calculated from the California Cost of Living Index from June 2010 to June 2011. The 2010 adjustment was just 0.9 percent.

The effect of the adjustment is to raise the level of incomes required to pay state income taxes (for single persons under 65, it jumps from $11,803 in 2010 to $12,122 in 2011), and to raise the thresholds for income tax brackets above that level.

Additionally, the standard deduction, the renters' tax credit and other income offsets also are adjusted by the inflationary factor. The standard deduction for a single taxpayer increases from $3,670 to $3,769 and for joint tax filers from $7,340 to $7,538.

The personal exemption for single taxpayers goes from $99 to $102, and for joint filers from $198 to $204.

One big change will be the dependent exemption credit, but it's only partially due to inflation. The dependent credit was reduced for the 2009 and 2010 tax years to $99 to help balance the state budget. The 2011-12 budget returns it to $315.

The University of California spent more on compensation in 2010 than it did the year before, but UC is relying less on students and the state's general fund to make payroll -- and more on its hospitals and the federal government.

Those are some findings from the annual report on compensation UC released today. The report compares UC's compensation practices from 2009 to 2010. Among the details:

• UC's total payroll grew by $107.7 million, or about 1 percent, during the period. UC spent $9.9 billion -- nearly half of its operating budget -- on salaries in 2010.

• The amount of UC's payroll that came from student fees and the state's general fund went down 6 percent, while the amount of its payroll that came from the federal government went up 8 percent and the portion coming from its hospitals went up 3 percent.

• UC spent $5.2 million less on salaries for teaching faculty, but $76.4 million more on salaries for clinical faculty. It also increased salary for health care employees by $62.7 million.

Read the full report here.

The State Lands Commission has mismanaged oil and other leases on public land, failing to collect rent or to renew leases worth millions of dollars, according to a state audit released today.

The report, by state Auditor Elaine Howle, found that 130 of the commission's nearly 1,000 revenue-generating leases were past due, including one held by a marine services company that remained on public land for more than 20 years without paying rent. The report said the commission missed opportunities to collect as much as $8.2 million in lease payments for just some of the leases it reviewed.

The commission, the report said, "is not effectively managing its leases, and as a result it has failed to collect or generate millions of dollars in potential revenue for the state's General Fund."

The three-member commission, which votes on oil, gas and other extraction leases on state land and waterways, consists of Lt. Gov. Gavin Newsom, Controller John Chiang and Finance Director Ana Matosantos.

Commission Executive Director Curtis Fossum said in a written response that he agrees with many of the auditor's recommendations and will implement most of them. The commission suffered from significant staff reductions, he said.

However, Fossum accused the report of unfairly representing the commission with "sound bite" headlines. He said examples used by the auditor "distort the bigger picture of commission successes."

Amazon.com has poured another $2.25 million into its effort to overturn a law requiring some online retailers collect sales tax on purchases made by Californians, bringing the company's total investment in the referendum qualification drive to more than $5 million.

The latest contribution to the committee funding the effort, "More Jobs Not Taxes," was reported in a campaign filing posted Friday to the Secretary of State's website.

Referendum proponents have until Sept. 27 to collect the 504,760 valid voter signatures needed to qualify for the next statewide ballot. If they hit that mark, the budget-related bill will be suspended until voters can act on the issue in the June 2012 statewide primary election.

A state board responsible for rural fire protection on Monday approved a maximum $90 fee per house in sparsely populated areas, significantly below the $150 charge envisioned by state lawmakers in their June budget.

Under the emergency regulation passed by the California Board of Forestry and Fire Protection, the full $90 fire prevention fee would apply to homeowners in extreme fire zones. Those living elsewhere in state responsibility areas would pay $70 each year.

Monday's regulation includes $65 in credits that would reduce those fees, including $45 for those who already pay for local fire prevention through district fees or taxes.

The regulation appears to raise nowhere near the $50 million that lawmakers are counting on this fiscal year, and certainly not the $200 million projected annually thereafter.

Board executive officer George Gentry estimated that the regulation would generate about $30 on average for each of the 850,000 homes in state responsibility areas. That would equal $25.5 million before subtracting new administrative costs that could be as high as $12 million annually.

The fee structure is far from final. Gov. Jerry Brown has called for clean-up legislation that would allow the state to apply funds to firefighting costs rather than fire prevention measures. Board members acknowledged that their fee proposal was essentially a first draft since they must follow up with a permanent regulation later this fiscal year.

Fiscal conservatives, meanwhile, have vowed to sue the state to block the fire fee from ever taking effect. They believe the law is unconstitutional and represents a tax that should have been passed on a two-thirds vote, rather than a majority.

"I think we're going to find out those areas that we need to come back and talk about in October because we're going to get an earful," said Stan L. Dixon, the board chairman and former Humboldt County supervisor, referring to anticipated public reaction. "I don't think anybody expects that this package could be anywhere near perfect."

Leaders of California's public colleges and universities said today that they are preparing for mid-year "trigger" cuts to their already-reduced budgets.

Under the budget Gov. Jerry Brown signed at the end of June, California State University and University of California stand to lose another $100 million if revenues do not meet expectations by the end of this year. California's community colleges are in line to lose $102 million in trigger cuts, Chancellor Jack Scott said in a conference call with reporters today.

"I'm sure they'll ... cut back on the number of sessions they'll offer in the spring and many of them will eliminate their summer sessions," Scott said of the state's 72 community college districts.

Brown's budget called for community colleges to handle the trigger cut by raising tuition from $36 a unit to $46 unit. But Scott said he hoped to convince lawmakers not to implement the tuition increase until the fall.

CSU Chancellor Charles Reed said he thought his system could handle the $100 million trigger cut without raising tuition in the middle of the school year. But he said he's not clear if the trigger cut would be ongoing.

"If they pull the trigger, is that a one-time $100 million (cut) and they'll replace it next year?" Reed said.

"If it is a one-time cut, we can muddle our way through. If it is a continuation cut, that is going to be much harder going into 2012-13."

Proponents have abandoned an effort to overturn a new law allowing rebirth of some redevelopment agencies shuttered under this year's budget package.

Marko Mlikotin, who filed referendum papers targeting AB X1 27 last month, confirmed to Capitol Alert today that he will not collect signatures to attempt to qualify his proposed measure for the next statewide ballot.

Mlikotin, president of the Sacramento-based California Alliance to Protect Private Property Rights, said his organization has decided instead to focus its resources on supporting the state in its defense of a lawsuit redevelopment agencies have filed to block the two budget bills targeting redevelopment agencies. The cost of qualifying the measure for the ballot by next month's deadline was also a factor, he said.

"We have come to the conclusion that the state's case against the redevelopment agencies is very, very strong .... The (organization's) resources can be spent much more wisely on fighting redevelopment abuse through the courts," he said.

The proposed referendum was cleared for circulation earlier this month. In order to qualify for the ballot, which would suspend the law until the next statewide election, proponents would need to collect 504,760 valid voter signatures by Sept. 27.

As Amazon.com gathers signatures to reverse a new online tax collection law, the state Board of Equalization said Friday that a mere 0.42 percent of personal income tax filers paid use tax on their 2009 out-of-state purchases.

The board, which administers sales and use tax collection in California, issued a new four-page review of use tax behavior in 2009. The state collected $10.4 million in use tax payments from personal-income tax returns that year.

Under long-standing California law, taxpayers are supposed to self-report use tax on remote purchases from out-of-state businesses, though very few do so. Democrats passed a different law in June that attempted to force out-of-state retailers like Amazon.com to collect those taxes.

By Phillip Reese
preese@sacbee.com

State Controller John Chiang has asked the University of California system to disclose employee pay data so he can publish it online, but system officials say they probably aren't going to give Chiang all that he wants.

Meanwhile, the comprehensive listing of UC salaries that the UC system usually publishes on its own each year -- posted in a searchable database at www.sacbee.com/statepay -- has been delayed once again, and is now several months late compared to previous years.

UC pay is a hot topic at the moment as students and parents wonder whether fee increases have partially gone to fund pay raises for staff, administrators and faculty. Without 2010 pay data, there's no definitive, comprehensive answer yet to that question.

Gov. Jerry Brown's Department of Finance said Tuesday that California was $541 million shy of its July revenue forecast, a total similar to one released last week by state Controller John Chiang.

School officials grew nervous last week because the state budget signed by Brown requires K-12 districts to absorb cuts if the state falls $4 billion shy of revenue expectations for the fiscal year. The budget also would impose cuts to higher education, social services and public safety programs.

State legislators and Brown tacked on that $4 billion expectation of higher revenues to finish closing the state deficit in June.

Advocates for the poor will urge Californians today to boycott Amazon.com until the online retailer begins collecting sales taxes.

Representatives of the Health and Human Services Network of California will hold a news conference at 10:30 a.m. on the Capitol's north steps asking state residents to close their Amazon.com accounts until the company stops fighting a law intended to force online retailers to collect California sales taxes.

The group will be joined by Sen. Loni Hancock, D-Oakland.

The Seattle-based retailer ponied up $3 million last month to collect signatures for a referendum that would overturn Assembly Bill X1 28. Gov. Jerry Brown and lawmakers enacted the measure as part of the June budget deal to raise $200 million a year.

"We're asking people to think before they shop on Amazon and tell Amazon what they think," said Nancy Berlin, director of the California Partnership, which advocates for health and social service funding. "We don't have the kind of money and power Amazon does, but collectively we're asking our people and others in our community who share our values to put their money where their values are."

Amazon has not collected sales taxes on California purchases since the law was passed, believing the law does not apply because the retailer ended its relationship with California-based "affiliates" who refer customers to its website.

Ned Wigglesworth, a spokesman for the More Jobs Not Taxes committee pushing the referendum, said in a statement that the U.S. Supreme Court has held tax laws such as California's unconstitutional.

"Taxpayers could get stuck with huge legal bills just because the Legislature used more gimmicks to balance the budget," Wigglesworth added. "This law would hurt consumers at a time they can't afford to send any more of their hard-earned tax dollars to Sacramento."

Tax increases require a two-thirds vote of the Legislature. Democratic lawmakers approved AB X1 28 on a majority vote because they said the law changed how existing taxes are collected. Under current law, residents are already supposed to pay a use tax on their out-of-state purchases.

The California Supreme Court agreed Thursday to review the state's redevelopment overhaul and delayed most provisions until it can decide the matter.

Cities and redevelopment agencies sued the state to block a June budget plan that eliminated about 400 agencies but allowed them to reopen if they contribute funds to schools, relieving the state of $1.7 billion in education costs.

Gov. Jerry Brown wanted to eliminate redevelopment agencies altogether in his January proposal, but he and state lawmakers ultimately agreed on the two-bill package (Assembly Bill X1 26 and AB X1 27) that gives them an option to pay and survive. Cities challenged the plan as unconstitutional, citing voter-approved laws that prohibit the state from taking money from local governments.

The court put the case on a fast track Thursday, asking for legal briefs starting in September and promising to decide the matter by Jan. 15, 2012. Five of the six sitting supreme court justices agreed to temporarily block most of the plan until the case is resolved, allowing redevelopment agencies to remain open. The agencies cannot, however, incur new debt, purchase property or enter into new contracts during that time.

For the second straight month since Gov. Jerry Brown signed the state budget, California has fallen behind in revenue projections, this time 10.3 percent for the month of July.

The state budget relied on a last-minute optimistic assumption that California would receive an additional $4 billion over the course of the 2011-12 fiscal year. Should the state determine in December that it will fall short, California would impose as much as $2.5 billion in further cuts to higher education, social services and K-12 schools, depending on how much it misses the revenue target.

Controller John Chiang released data Tuesday showing that California received $538.8 million less in July than the $5.2 billion that budget writers projected for the month. Of that gap, only $120 million is due to the big three tax sources -- personal income, corporate and sales.

The remaining $419 million gap comes from an "other" category, which includes the unallocated July share of the $4 billion tax windfall estimate. The state not only missed the windfall target, but also the less rosy targets for corporate and sales taxes that fiscal officials set in May. The state beat its original personal income tax estimate by $89 million, or 2.9 percent.

The Obama administration got an earful Thursday morning, as California Medical Association officials and nearly two dozen others made the case against California's proposed physician reimbursement cuts.

In a meeting that lasted about 90 minutes, the Centers for Medicare and Medicaid Services director, Dr. Donald Berwick, heard from Californians warning the proposed cuts would hurt patient care. The meeting was part of an Alliance for Patient Care lobbying swing that also included a packed-room briefing for congressional staff members.

Dustin Corcoran, the chief executive officer of the California Medical Association, said Berwick "asked a lot of good, probing questions" but did not otherwise tip his hand during the meeting. The administration has until Sept. 30 to make its decision on California's proposed cuts, which state officials justify as a way to help balance the budget.

Assembly Republicans questioned Wednesday whether the state budget meets a constitutional requirement for school funding in a letter sent Wednesday to Attorney General Kamala Harris.

The formula-based requirement, Proposition 98, determines the minimum amount the state must provide K-12 schools and community colleges each year. That amount increases whenever the state receives more revenues, which posed a challenge for budget writers this year because they relied on a revenue spike to help fill the state's $26 billion hole.

To ensure the state could apply more money to the deficit rather than increasing school budgets, lawmakers shifted more than $5 billion in statewide sales tax revenues to counties. They said that because this money was headed to county coffers, rather than to the state's, schools weren't owed an additional $2.1 billion they might otherwise receive.

The Secretary of State has given opponents of two bills approved as part of this year's budget package the OK to begin collecting voter signatures to qualify their referendums for the 2012 ballot.

One measure, filed by Sen. Ted Gaines, would overturn a new law that would charge rural homeowners as much as $150 annually to pay for state fire prevention services. The fee, which was approved by a majority-vote budget bill opposed by Republican lawmakers, would raise an estimated $50 million this fiscal year.

The second proposed referendum cleared to hit the streets yesterday seeks to overturn a budget-related bill that would allow local redevelopment agencies set to be eliminated to continue to exist if they provide extra funding for schools and local governments. The challenge to AB X1 27 was filed by eminent domain opponent Marko Mlikotin.

Proponents of both proposals have roughly two months to collect the signatures of 504,760 registered voters to secure a spot on the next statewide ballot. If they qualify, the laws will be suspended until the election is held.

Redevelopment agencies reiterated Friday that the California Supreme Court should block a state plan that asks them to relinquish an estimated $1.7 billion under threat of elimination.

In an "informal reply" to an "informal opposition" filed by Attorney General Kamala Harris, the redevelopment agencies said the state did not address their claims that the plan is unconstitutional under previous voter-approved measures protecting local government funds. Harris submitted her "informal opposition" Wednesday on behalf of Department of Finance Director Ana Matosantos at the request of the state Supreme Court.

The redevelopment agencies again emphasized that they would suffer "irreparable injury" unless the court immediately suspends the legislative plan. Their response notes that agencies would be forced to dissolve on Oct. 1 unless they agree to send money to school districts and local agencies.

It's July 29, and California is in the unusual position of having its fiscal house in order while federal leaders are mired in a partisan battle over the debt ceiling.

We asked a few veterans of state budget battles, past and present, how Washington leaders might reach a bipartisan deal in the coming days. They emphasized that the specifics of the state budget and the federal debt ceiling are different, though they saw plenty of parallels in the political dynamics.

California Attorney General Kamala Harris told the state Supreme Court this week that it should allow the state's elimination of redevelopment agencies to proceed.

In a rare "informal opposition" filed Wednesday on behalf of the Department of Finance, Harris wrote that cities seeking to retain redevelopment agencies have filed a "meritless" claim. She said the state created redevelopment agencies by statute and that nothing in the constitution prohibits the state from revoking them by statute.

On a majority vote, lawmakers voted last month to eliminate redevelopment agencies and offer a path for agencies to reconstitute themselves as long as they send substantial payments to school districts and local governments. Legislative officials believe the plan will save the state $1.7 billion this fiscal year by reducing the state's financial responsibility to schools.

Cities and redevelopment agencies filed a lawsuit last week asking the Supreme Court to immediately block the two-bill redevelopment plan contained in Assembly Bill X1 26 and AB X1 27. They said the plan is unconstitutional in part because voters agreed last year to prohibit the state from compelling payments from redevelopment agencies.

The state Supreme Court asked the state to submit an "informal opposition" on the merits of the case to help the court decide how to proceed, said Harris spokeswoman Lynda Gledhill. Cities took an unusual tack in asking the Supreme Court, rather than a trial court, to hear the case.

Harris agreed that the Supreme Court should take up the matter, but she disagreed that the court should block the plan for the time being. Doing so, she wrote, "would wreak havoc on the operation of the state for this fiscal year." Instead, she said that an expedited review by the court would suffice.

In her filing, Harris noted that she was responding only on behalf of Department of Finance Director Ana Matosantos, and not Controller John Chiang, who has not taken a position on the case.

Update (4:30 p.m.): The filing is an "informal opposition," not an "informal opinion."

State Treasurer Bill Lockyer will try to borrow about $5 billion for a brief period later this month to prepare for a possible federal "disruption," his office said Thursday.

Lockyer had originally planned to borrow the same amount of money later this year in order to ensure California has enough cash to pay its bills. But his office believes that absent a federal deal to raise the debt ceiling, the state could suffer from a "cash flow disruption and market turmoil" that would leave it unable to cover all operating costs.

To preempt such a problem, the treasurer will sell about $5 billion in short-term notes to private investors on July 26, using that money as a bridge to a separate $5 billion borrowing later this year. If federal officials reach a deal on the debt ceiling by July 26, Lockyer can avoid the bridge loan.

California borrows billions each fiscal year to pay its bills until the bulk of tax payments flow to the state in big collection months like April.

Lockyer relied on a $6.7 billion interim loan last October to help manage California's cash needs. In that deal, J.P. Morgan and Goldman Sachs accounted for nearly 70 percent of the funding, earning a 1.4 percent interest rate.

Sen. Ted Gaines, R-Roseville, filed referendum papers Wednesday to overturn a new law requiring rural homeowners to pay a fire fee.

Gaines is working with the California Republican Party on the referendum effort, according to his chief of staff, Steve Davey. Republican lawmakers opposed Assembly Bill X1 29 when it cleared the Legislature last month by a majority vote.

The proposal would charge rural homeowners as much as $150 annually to pay for state fire prevention services, raising an estimated $50 million this fiscal year. Gov. Jerry Brown signed AB X1 29 earlier this month but said lawmakers needed to clean up the law so that funds could be used for firefighting rather than preventative measures.

It would apply to 850,000 residential structures outside city boundaries or federally protected areas for which the state is responsible for fire suppression. Most are in parts of the state represented by Republican lawmakers.

Redevelopment agencies filed suit Monday in California Supreme Court to prevent California from squeezing $1.7 billion out of nearly 400 local entities to help solve the state's budget deficit.

The agencies, which subsidize construction in downtrodden areas, had vowed to challenge the state ever since Gov. Jerry Brown proposed eliminating them altogether in January. Cities were fiercely opposed to the move, while Brown and Democratic lawmakers said the money should go toward basic needs rather than private projects.

The governor and legislative Democrats ultimately agreed on a plan that allows agencies to survive so long as they contribute an estimated $1.7 billion to schools and local governments this fiscal year, followed by $400 million annually thereafter. California plans to reduce the funds it provides to schools by a like amount, thereby saving the state money.

The California Redevelopment Association and the League of California Cities were joined Monday in their suit by San Jose and Union City. The two Bay Area cities contend that they are unable to make the payments and would face elimination under the plan.

The plaintiffs say the state violated voter-approved Proposition 22, which added protections for local government funding. Redevelopment agencies backed the measure after the Legislature took their funds to help balance the state budget.

They filed suit in California Supreme Court, choosing the state's highest venue because they said the budget plan impacts cities across the state and only the Supreme Court can act authoritatively before the first payment is due in January.

Lawmakers agreed to the two-bill proposal, Assembly Bill X1 26 and AB X1 27, in a mostly party-line vote in June. The lawsuit can be found here.

Gov. Jerry Brown's Department of Finance reported Wednesday that state revenues were $230 million behind fiscal-year expectations in the recently enacted budget.

That's a smaller amount than the $351 million gap that Controller John Chiang found after counting May and June revenues. The Controller's Office and Finance use different accounting methods.

Both reports show that revenues are running behind, however slightly, compared to the optimistic projections that lawmakers and Brown relied upon to close a remaining $9.6 billion deficit last month. Either way, the gap represents less than 2 percent of the $12.6 billion the state received in June.

California State University trustees today approved a salary for the new San Diego State president that is $100,000 higher than his predecessor's -- despite receiving a letter this morning from Gov. Jerry Brown telling the board that its "approach to compensation is setting a pattern for public service that we cannot afford."

Trustees voted 11-4, with Lt. Gov. Gavin Newsom, Margaret Fortune, Melinda Guzman and Steve Glazer voting against the compensation package for Elliot Hirshman, who began earlier this month as the president of San Diego State. The package called for a salary of $400,000, with $50,000 of it paid for with private funds from the university's foundation.

Hirshman's predecessor, Stephen Weber, earned an annual salary of $299,435 at the end of his 14-year tenure at the helm of San Diego State.

Newsom argued that CSU shouldn't approve such a large pay increase on the same day it raised tuition for students. Before voting on Hirshman's compensation, the board approved a second tuition increase for the fall that will make undergraduate education about $1,000 more than it was last year.

"I caution us today with these two decisions, and I feel compelled to make this point," Newsom said. "There are plenty of people watching, and people we need as supporters."

Newsom said he had heard from two lawmakers earlier in the day who were concerned about the proposed salary hike. One of them, state Sen. Ted Lieu, posted his thoughts on Twitter:

"To CSU full board, let me be very clear: I will find it extremely difficult to vote to restore CSU funding if SDSU Prez salary is approved," Lieu wrote.

Editor's note: This story has been updated to reflect that Trustee Melinda Guzman also voted against the compensation package for Hirshman, making the vote 11-4 in favor Corrected 1:56 p.m., July 13, 2011

Tuition is going up this fall at California State University. Again.

Today trustees approved a 12 percent increase that comes on top of a 10 percent increase approved last year. Combined, the two increases bring undergraduate tuition at CSU's 23 campuses to $5,472 a year. That's an increase of about 23 percent compared with last year, and does not include campus-based fees that average $950 a year.

The tuition increase is a direct response to the state budget approved last month, which cuts state funding to CSU by $650 million, or about 24 percent compared with last year.

"The enormous reduction to our state funding has left us with no other choice if we are to maintain quality and access to the CSU," Chancellor Charles B. Reed said in a statement. "We will focus on serving our current students by offering as many classes and course sections as possible. We will also be able to open enrollment for the spring 2012 term, which is critical for our community college transfer students."

The full board of trustees voted 13-2 for the tuition increase, with student trustee Steve Dixon and Lt. Gov. Gavin Newsom opposing.

"We must invest in higher education and we can no longer allow the Legislature to get off the hook," Dixon said.

UPDATED 3:35 p.m. with final vote of full board

Gov. Jerry Brown has sent a letter to California State University trustees asking them to reconsider plans to give the new president of San Diego State a salary that would be $100,000 higher than his predecessor's.

The board is gathered in Long Beach today to take up a number of issues, including setting compensation for Elliot Hirshman, the new president of San Diego State, and raising student tuition by 12 percent.

CSU Chancellor Charles Reed is asking the board to set Hirshman's salary at $400,000. His predecessor, Stephen Weber, earned an annual salary of $299,435 at the end of his 14-year tenure.

Brown, in a letter to CSU board chairman Herbert Carter, said he was concerned about "the ever-escalating pay packages awarded to your top administrators."

"I fear your approach to compensation is setting a pattern for public service that we cannot afford," the governor wrote.

It didn't take long for California's optimistic budget to fall behind in tax revenues.

Controller John Chiang released data Monday showing that California received $351 million less in May and June than state leaders expected in the budget that Gov. Jerry Brown signed just 12 days ago.

To help close a final $9.6 billion gap, Democratic lawmakers and Brown relied on optimistic assumptions that the state would take in $1.2 billion above projections in May and June, as well as $4 billion more over the following fiscal year. If the state continues to fall short of expectations, it will impose deeper cuts in higher education, social services and K-12 schools under the budget "trigger" deal.

Based on Chiang's data the state is already behind the May-June milepost. He said the state took in only $849 million of the $1.2 billion in extra cash expected during that period - or $351 million less.

"We don't have a detailed cash flow (of Brown's budget) to break it down," said Chiang spokesman Jacob Roper. "We can't look at it and say whether it was softness in corporate tax refunds or excise taxes or withholdings being down."

It's important to keep in mind that this is only negative news relative to optimistic assumptions that lawmakers relied upon to close the deficit. The state did take in more money than analysts projected earlier this year, as well as $1 billion, or 9 percent, more than in June 2010.

While the Department of Finance often releases similar data to the controller's, it remains possible that Finance will provide different June totals later this month based on a different accounting method. Finance was not immediately available for comment.

Update (1:25 p.m.):Senate President Pro Tem Darrell Steinberg, D-Sacramento, said, "We're going to have to look at the numbers over the next six months, of course. The trigger itself, pulled or not pulled, doesn't have to be made until some time in December or January. So I think we need to see whether this is a blip or a trend."

Assemblyman Anthony Portantino complained today that his office's operating budget is being slashed as punishment for his voting no on the controversial state budget crafted by Democratic leaders.

Proposed cuts include placing all of Portantino's staff on leave without pay for more than a month.

The aides essentially would be furloughed from Oct. 21 through Nov. 30. They currently work in Portantino's district and Capitol office, and for the select committee on the entertainment industry that he chairs.

"This bizarre and unprecedented action is clearly intended to punish me for my vote and to discourage other Assembly members from performing their duties in a conscientious manner," Portantino, D-La Canada Flintridge, said in a written statement.

Slashing his budget would have a "detrimental effect" on district services and he will ask Assembly Rules Committee to reconsider, said Portantino, who will be termed out of the Legislature next year and is planning to run for Congress.

Portantino released a letter today from Assemblywoman Nancy Skinner, a Berkeley Democrat who chairs the Rules Committee, that warned him his budget could be cut as soon as Monday.

The letter, dated last Friday, said that Portantino's spending was projected to be in deficit by $67,179 by Nov. 30. Though he had received supplemental funding to cover the gap from January through June, no such money had been approved for the remainder of 2011, the letter said.

Skinner asked Portantino to submit a spending plan by Friday to correct his projected deficit.

If no such plan is received, or if it does not solve the problem, Skinner said that in addition to placing staff on leave without pay beginning Oct. 21, the following actions would be implemented immediately, beginning July 18:

• Portantino's mail could not be sent through the Assembly mailroom and stamps would not be issued to him.

• He could not order office supplies, furniture, equipment, or subscriptions to publications.

• Staff travel would be prohibited, including mileage reimbursement for driving within Portantino's district.

Skinner told The Bee that Portantino previously had been warned in April, long before last month's budget vote, that his office budget was in the red and that he needed to tighten his belt.

Skinner said she thinks it is "delusional" for Portantino to blame others for responding to his overspending. "Somehow he feels he's getting more Brownie points around being some kind of independent by sending (an accusatory) letter out," she said.

Robin Swanson, spokeswoman for Assembly Speaker John A. Perez, said "it would be unfair to other members to continue to subsidize Mr. Portantino beyond his office's approved budget."

"The Assembly simply could not continue to cover the spending gap and subsidize Mr. Portantino's overdrawn account," Swanson said.

Portantino said he has not overspent and that the size of his staff has remained relatively stable in recent years, when he has served as chairman of the Assembly Higher Education Committee and, later, the Revenue and Tax Committee. He no longer is leader of a major policy committee.

Portantino said that Perez and the Rules Committee targeted his office budget only after he bucked Democrats in March on legislation to cut redevelopment agencies, and in June, when he voted against the state budget.

Read the letters below:

Skinner Letter to Portantino

Portantino Response to Asm. Skinner 7-11-11

California State University trustees will take up two hot-button issues when they meet in Long Beach tomorrow: increasing student tuition by 12 percent and setting pay for the new president of San Diego State -- proposed to be $100,000 higher than his predecessor.

Stephen Weber, the outgoing president of San Diego State, earned an annual salary of $299,435 at the end of his 14-year tenure at the helm of the campus. CSU Chancellor Charles Reed has proposed paying his replacement, Elliot Hirshman, $350,000 plus an additional $50,000 to be paid by the San Diego State University Foundation. Hirshman also would receive housing provided by the university and a car allowance of $1,000 a month, according to the compensation package Reed is presenting to the board.

The California Faculty Association, the union that represents professors at Cal State's 23 campuses, is raising questions about the pay increase. It comes as trustees are being asked to approve a second tuition increase for the 2011-12 school year that comes on top of a 10 percent increase for the fall they approved last year. Combined, the two increases would bring undergraduate tuition at CSU to $5,178 this fall -- or $948 more than it was in fall 2010.

"Tone deaf?" the union asks on its Facebook page, where comments from faculty are flying. Sacramento State professor Michael Fitzgerald posts: "It is just wrong. What are the CSU trustees smoking?"

If one judged the state of the economy solely by California's budget prognosticators, life would seem grand. Since January, Gov. Jerry Brown and legislators have relied on $11.8 billion more in tax dollars and higher projections to help balance the state budget.

That suggests continued economic growth over the next year.

But today's gloomy jobs report paints a different picture as the national unemployment rate rose to 9.2 percent. So what gives?

State officials are essentially banking on income growth by the wealthiest earners, who pay the bulk of California's income-tax revenues.

A week after Gov. Jerry Brown signed California's rare on-time budget, Standard & Poor's revised the state's ratings outlook Thursday to "stable" instead of "negative."

The ratings agency said the solutions in the 2011-12 budget are "largely realistic and should clear a path" for the state to borrow cash in the short term to pay its bills. Despite the outlook improvement, California's general obligation debt rating remains at A-, lowest in the nation.

S&P said that as much as $6.76 billion in budget solutions "entails some amount of uncertainty" due to administrative, legal or political hurdles. Those include the overhaul of redevelopment agencies, directing $5 billion to counties without reimbursing schools, online tax collection, Medi-Cal cuts and a $12 per vehicle registration fee hike.

Still, S&P believes those solutions are a small enough part of the budget for the state to manage. The full report can be seen here.

California's unemployment insurance fund descended into insolvency more than two years ago, but the state continues to pump out about $600 million a month in benefits to jobless workers and has borrowed $11 billion from the federal government to keep the checks flowing.

So what to do about it?

The newly enacted state budget borrows money from another fund which supports disabled workers to pay a looming $300-plus million interest payment, but legislation pending in Congress would give California and other states relief from unemployment insurance interest.

Congressional proposals and another from the Obama administration could return California's battered UI fund to solvency, mostly by sharply increasing payroll taxes paid by employers. But there's no certainty they will be enacted and California still needs a long-term plan to bring unemployment benefits and revenues into balance, according to a new report by the Legislature's budget analyst.

"The insolvency of California's UI fund poses significant problems for California," the report, written by Brian Uhler, says. "Absent reform of the UI program, payments from the UI fund are expected to exceed revenues, resulting in continued borrowing from the federal government and associated interest costs."

We asked our Facebook fans to contribute questions for The Bee Capitol Bureau's interview with Senate President Pro Tem Darrell Steinberg.

The hourlong interview with the Sacramento Democrat touched on many of the topics raised by readers. Here's Steinberg's response to a question based on one submitted by Facebook user who wanted to know whether Steinberg thinks Proposition 25 is a bad thing, given that legislators temporarily lost their pay and some experts believe the first majority-vote budget is unbalanced:

Click here to become a fan of Capitol Alert on Facebook. Check out tomorrow's Bee for Bee colleague Kevin Yamamura's recap of Steinberg's comments on the budget.

Legislative pay has resumed in the wake of last week's budget deal, but Senate President Pro Tem Darrell Steinberg said Wednesday that lawmakers still take exception to Controller John Chiang's decision to cut off their wages last month.

Steinberg, a Sacramento Democrat, said the issue needs to be legally challenged, though he still doesn't know who will pursue the case.

"In the moment, of course, it was a popular decision," Steinberg told The Bee's Capitol Bureau. "But over the long term, do we really want any governor of the state of California, or a controller, or it could be an attorney general, to say, 'I demand more cuts. I demand solutions different from what you presented or else people aren't going to get paid.' "

After Gov. Jerry Brown vetoed Democrats' first majority-vote budget, Chiang reviewed the plan using new authority under Proposition 25. Voters passed that measure in 2010 to dock pay for late spending plans and reduce the vote threshold for budget passage. Chiang determined that their budget did not meet qualifications for a balanced budget under Proposition 58 and so was insufficient to meet the pay requirement.

Over 12 days, rank-and-file lawmakers lost about $4,830 each in salary and per diem.

"I think it was an erroneous decision," Steinberg said. "And I think over time it will be seen as a decision with very troubling precedent for this state and our system of government."

Lawmakers in both parties questioned the decision, though Democrats seemed to react with more anger than their GOP counterparts. Democrats maintained that their budget was balanced in accordance with the law.

It is not clear that the budget that Democrats passed and Brown signed last week would meet the same tests Chiang used in his analysis, but the controller believes he does not have authority to intervene once the governor signs the budget.

George Deukmejian was not the most exciting governor of California; in fact, his eight years as governor were a striking contrast to the previous 16 years of movie star Ronald Reagan and wunderkind Jerry Brown.

But he balanced the state budget (after inheriting a hefty deficit from Brown in 1983), jump-started a huge prison construction program and kept his mouth shut when the FBI conducted an undercover sting investigation of Capitol corruption and asked him to veto the bogus bills that agents ran through the Legislature.

Now 83 and still living in the same modest Long Beach home that he and wife Gloria bought more than a half-century ago, Republican Deukmejian is the subject of a lengthy profile in the Long Beach Press-Telegram in which he criticizes his successors and legislators for letting the budget get out of whack.

"I used my veto powers more than 4,000 times as governor," Deukmejian told the newspaper's Doug Krikorian, adding, "The Democrats dominated the Legislature, and I'd constantly use the line-item veto on spending and taxes. I'd also use the veto on bills I didn't like. Not one of my vetoes were ever overturned."

"This (the chronic budget crisis) never should have happened," Deukmejian continued. "The politicians in this state have been unable to say no to the pressure applied by all the special interests groups. That's all they had to do, but wouldn't do it and caved in too often. It's really simple. If you don't live within your means, you're going to go into debt. The same thing applies to the state. If you don't have the money, then funds shouldn't be appropriated."

A budget-related bill that Gov. Jerry Brown signed Thursday has sparked a division within the education community as school districts push to reverse new protections for teachers.

Lawmakers rushed Assembly Bill 114 to the Senate floor and passed it out of both houses in the final 45 minutes of session Tuesday night, as we reported Thursday. The bill protects teachers from further layoffs in the new fiscal year. It also requires districts to ignore the possibility they could lose $1.5 billion in classroom funding in December -- equal to about $250 per student -- as well as $248 million in school bus money.

Teachers say those protections ensure stability through the school year and prevent districts from preparing for the worst when they don't have to. District officials say those requirements handcuff their ability to plan for a midyear reduction. They are also frustrated by a provision that suspends requirements that districts show how they balance their budgets for three years.

Two groups that represent school districts sent letters this week to Brown. School Services of California, which advises districts across the state on fiscal matters, wrote that the budget itself is unstable and that AB 114 "adds insult to injury by gutting these critical fiscal oversight provisions, and we believe, will put hundreds of school districts at risk of insolvency in the future."

The California School Boards Association penned a letter Thursday to the governor, urging him to clean up the bill with subsequent legislation.

In the letter, the group suggests it may consider legal action against the state for possibly underfunding Proposition 98 through a sales tax shift to counties. Many school officials believe an undercurrent of AB 114 was that the California Teachers Association could have challenged the state if lawmakers had not protected teachers and offered to repay schools $2.1 billion in future years.

California State University has not wasted any time responding to the budget Gov. Jerry Brown signed today, which cuts CSU funding by at least $650 million for the coming school year.

Chancellor Charles Reed announced this afternoon that he will ask trustees to vote on a 12 percent tuition increase when they meet on July 12. The increase would be effective this fall, and comes on top of a 10 percent increase that trustees approved last year -- also to take effect this fall.

If trustees approve the newest increase, annual undergraduate tuition at the 23 CSU campuses will be $5,178 this fall -- or $948 more than it was in fall 2010.

"What was once unprecedented has unfortunately become normal, as for the second time in three years the CSU will be cut by well over $500 million," Reed said in a statement. "The magnitude of this cut, compounded with the uncertainty of the final amount of the reduction, will have negative impacts on the CSU long after this upcoming fiscal year has come and gone."

The budget Brown signed calls for cutting CSU and the University of California each by another $100 million if revenue expectations are not met by December.

Controller John Chiang has restored lawmaker pay dating back to Tuesday, the day of the budget passage, according to spokeswoman Hallye Jordan.

Rank-and-file lawmakers lost salary and living expenses of about $4,830 over 12 days. Chiang ruled last week that he would stop pay dating back to June 16 under his interpretation of Proposition 25, which voters approved last year to block legislative pay for late budgets and reduce the budget vote threshold from two-thirds to majority.

In his June 21 analysis, Chiang cited seven problems with the previous Democratic budget, particularly a $1.3 billion underfunding of K-12 schools and community colleges. He also said lawmakers had not passed all of the bills necessary to implement their plan. He determined that it was not balanced, and therefore, not sufficient to maintain pay.

Gov. Jerry Brown signed a new version of the Democratic majority-vote budget Thursday, and Chiang deemed the governor's signature good enough to reinstate lawmakers' pay.

It is not clear that lawmakers approved all of the bills to implement their plan this time. And Brown himself had yet to sign some of the major ones on his desk as of 3:30 p.m.

But Chiang does not believe he can weigh in once the governor signs the main budget bill, according to the Controller's Office. That's because the governor's Department of Finance makes its own assessment for budget balance when he signs the main budget legislation, Senate Bill 87.

PHOTO CREDIT: The California state Capitol in Sacramento, Thursday, Dec. 25, 2008. Michael Allen Jones / Sacramento Bee file photo

Updated to reflect vetoes outside the general fund.

Gov. Jerry Brown's office has released an eight-page list of his line-item vetoes in the 2011-2012 budget, totaling $23.8 million in the $85.9 billion general fund spending plan and $270 million in the entire budget.

The vetoes also include $237 million of bond funds, $7 million of special funds and $2 million of federal funds.

They include elimination of funding for the California Postsecondary Education Commission and the California Longitudinal Teacher Integrated Data System (CALTIDES), which was being built to track teacher performance.

Find the list below.

SB 0087 Line Item Veto

After a veto fight with his own party and unresolved differences with Republicans, Gov. Jerry Brown signed an on-time $85.9 billion spending plan Thursday that slashes higher education and the safety net while relying on a windfall of tax revenues.

Besides a February 2009 budget that was $24 billion out of whack that same May, the plan Brown signed Thursday was the state's earliest since 2006. Democratic lawmakers relied on new voter-approved powers that enabled them to pass a budget with majority support rather than two-thirds.

Since talks with Republicans died over the weekend, GOP leaders have declared victory by blocking tax extensions and allowing taxes on vehicles and sales to fall Friday as 2009 rates expire. They celebrated Thursday by holding a press conference at Downtown Ford.

Democrats were measured in their response, bemoaning the program cuts but saying it was the best package they could construct without Republican support. Brown chose not to have a public signing ceremony Thursday, signing the budget bills behind closed doors.

Brown's budget includes $270 million total in line-item vetoes, and $23.8 million within the general fund. The bulk of the general fund cut affects trial courts; Brown's veto statement says they do not need $22.9 million because the state is delaying the transfer of parole revocation hearing responsibilities.

Brown and Democratic leaders have vowed to pursue a 2012 ballot initiative asking voters to reinstate those tax hikes. One of the budget bills, Assembly Bill 114, lays the groundwork for such a measure, setting terms for a retroactive $2 billion school repayment should voters reject taxes or the ballot proposal never materialize.

As of 2 p.m., the governor had signed the main budget bill, Senate Bill 87, and about half of the related "trailer" bills. He has not yet signed seven others, including AB 114.

The latest deficit was as large as $26.6 billion in February. Since that time, lawmakers and Brown balanced the budget with a roughly even mix of cuts and tax windfall, as well as a smaller amount of fund shifts and internal borrowing. They are relying on about $11.8 billion in unanticipated tax growth, an amount nearly equal to the $12 billion that Brown originally wanted over 18 months through his tax extensions on vehicles, sales and income.

The budget plan did involve deep cuts to the state's neediest, a point that has been overlooked recently because of the two-step way in which Democrats solved the budget this year.

Lawmakers passed the bulk of their spending cuts in March, most on a majority vote without Republican support. The March reductions hit virtually every program that subsidizes the state's poor. It included a $1.5 billion reduction in Medi-Cal spending, a nearly $1 billion cut in welfare-to-work and a $178 million reduction in SSI/SSP payments to low-income elderly and disabled.

Higher education also got hit hard. The state cut the University of California and California State University systems each by $500 million in March and another $150 million this week. Both systems have said they will seek tuition hikes. Lawmakers also raised community college fees by $10 per unit. Further cuts could come if the state falls short of its optimistic revenue projections for the next fiscal year.

A smaller, but highly visible cut, will result in the closure of up to 70 state parks.

Democrats solved the $9.6 billion remainder of the problem Tuesday with a grab bag of changes. Those include: a $4 billion optimistic revenue projection backed by "trigger" cuts; nearly $3 billion in delayed payments to schools; a $1.7 billion restructuring of redevelopment agencies; additional cuts to higher education and courts; and fee increases on rural homeowners and drivers.

Majority-party lawmakers reached that compromise with Brown only after a spirited battle with the governor after he vetoed their first budget two weeks ago. Brown's veto led to Controller John Chiang withholding legislators' pay, though the two executives rejected the Democratic budget for different reasons.

The biggest change in the final budget was that Democrats removed some dubious solutions, such as the sale of state buildings and taking $1 billion from First 5 commissions. They also took out a quarter-cent local sales tax increase, both because it was legally risky on a majority vote and would have undermined Brown's pledge not to raise taxes without a vote of the people.

They replaced those ideas with the $4 billion optimistic revenue projection. They said that was not a gimmick because it was backed by $2.5 billion in cuts that would "trigger" if the money never materializes.

PHOTO CAPTION: Gov. Jerry Brown, flanked by Assembly Speaker John A. Perez, D-Los Angeles, left, and Senate President Pro Tem Darrell Steinberg, D-Sacramento, signs the budget Thursday shortly after noon at the Capitol. Photo by Hector Amezcua

Your wallets will start feeling heavier tomorrow.

That was the message from a handful of Republican Assembly members this morning as they applauded their resistance during budget talks to approving temporary tax extensions. The budget plan passed by the Legislature this week assures that those taxes will expire at midnight, which the legislators say will save the average Californian about $260 each year.

"This is a great day for California," said Assemblyman Tim Donnelly, R-Twin Peaks. "The death of these taxes is the rebirth of our economy."

As the legislators gathered in front of a pair of SUVs at Downtown Ford in Sacramento, Assembly Republican leader Connie Conway said that someone buying a $20,000 car this weekend would pay $300 less in taxes and fees than if they bought the car today.

"We've held the line. We've not negotiated. We're very happy that July 1st is coming," said Assemblyman Steve Knight, R-Palmdale.

Gov. Jerry Brown's original budget plan required at least two Republican votes each from the Assembly and the Senate. It would have held steady the rates for income and sales taxes and vehicle license fees. Instead, all of those rates will drop under the spending plan that Brown is expected to sign into law today.

Democratic leaders said Republicans missed out on a chance to enact significant pension, spending and regulatory reforms by not agreeing to temporarily extend those taxes.

But Conway said Brown walked away from the negotiating table because labor unions could not swallow the reforms that Republicans wanted.

"It was an opportunity to squandered by the governor," she said. "Our agenda is to honor and respect the taxpayers that provide the money for the budget."

PHOTO CREDIT: Conway speaking at Thursday's event. Paresh Dave / Sacramento Bee.

Gov. Jerry Brown has signed eight budget-related bills, including controversial measures to abolish state redevelopment agencies in their existing form and to require online retailers such as Amazon.com to collect sales tax on purchases made by Californians.

The eight measures signed by Brown were part of the majority-vote budget package approved by the Legislature earlier this month. The governor has yet to act on the main budget bill and trailer bills passed last night as part of the agreement reached between his office and Democratic legislative leaders.

Click here for a full list of the bills signed by Brown.

Related Posts:

Amazon says it will cut ties with California affiliates if Brown signs tax bill

Little praise for California's majority-vote budget package

Dan Walters hosts: Dissecting the state budget

Republicans aren't the only budget observers whose feathers are ruffled over the majority-vote budget plan approved by legislative Democrats last night.

Representatives from some education, law enforcement, health and welfare advocacy and local government groups are bemoaning various parts of the package, which even one Democrat described as "light years from perfect," in some cases threatening legal action.

A range of responses from Democratic and Republican lawmakers and officials, education and local government groups and more are posted after the jump. The post will be updated as more reactions roll in.

One of the most visible "trigger" cuts in the Democratic budget package is an additional seven-day school year reduction next spring should revenues fall short of optimistic projections.

But that potential $1.5 billion reduction won't be as easy as flipping a switch in December. The education budget bill, Assembly Bill 114, would require districts to bargain further reductions in the school year with unions representing teachers and non-classroom staff.

Some districts may seek to negotiate in advance for a "trigger" clause in their contracts, but they have less leverage because the bill also blocks them from laying off more teachers.

The state already has allowed districts to reduce the school year from 180 days to 175 days. According to a survey by the Legislative Analyst's Office, 30 percent of districts dropped the full five days this past school year, while another 28 percent cut between one and four days. Typically, teachers and staff have agreed to such furloughs to reduce other potential reductions such as benefit cuts or layoffs.

Some district officials previously complained that the state was quick to reduce the school year but not override collective bargaining protections. In essence, the state cut the money and told districts and staff to negotiate the best way to absorb it.

That appears to be what would happen again if the seven-day "trigger" cut takes effect. Some districts may cut the year, but others would find it difficult to bargain and have to search for other ways to save money.

PHOTO CREDIT: Tanishq Abraham, 7, is the last to join the line after recess to head inside for lunch at Heron Elementary School in Sacramento on May 4, 2011. Sacramento Bee / Renée C. Byer

Rex Babin is the political cartoonist for The Bee. See a collection of his work here.

No wonder the last bill of the night took so long.

The education bill associated with the Democratic budget came to the Senate floor shortly after 10 p.m. last night. Assembly Bill 114 is chock full of interesting provisions, including one that would make the state liable for roughly $2.1 billion in retroactive school funding if voters reject or never get the chance to vote on a 2012 ballot measure that increases taxes and shifts responsibilities to counties in the constitution.

Under the majority-vote budget, the state will shift $5.6 billion in taxes to local governments to pay for various services, including a redirect of inmates to county jails. By sending that money to counties, the budget no longer counts that $5.6 billion as state revenue -- and thereby does not have to give a roughly 40 percent share to K-12 schools and community colleges.

Gov. Jerry Brown and Democratic leaders have pledged to pursue a 2012 ballot measure that puts this "realignment" plan in the constitution, giving counties sufficient assurances that they will continue receiving money for providing services in lieu of the state. Based on AB 114, that measure also will include tax increases to pay for realignment in future years, just as Brown's original budget sought to do.

AB 114 says that if the voters reject this measure -- or if it never reaches the ballot -- the state must determine in November 2012 how much it would have owed schools for 2011-12 had the $5.6 billion never gone to local governments. Right now, that amount stands at about $2.1 billion. The money would be repaid over five years with 20 percent of it dedicated to paying off deferrals, mandates and other onetime purposes.

If the ballot measure fails, the bill seems to ensure that schools are essentially held harmless by the tax shift -- and that their base will effectively be $2 billion higher this year and in future years than Brown's original January budget proposed.

If the measure passes, schools will not get repaid that $2 billion, but they stand to get more money from voter-approved taxes in future years.

Teachers won other concessions in the budget deal, particularly provisions that prevents school districts from laying off any more teachers over the course of the next fiscal year. AB 114 suspends district powers to issue layoffs between now and August and requires districts to ignore the possibility of mid-year cuts for revenue projection purposes. As previously reported, it also requires that districts deal with a potential mid-year "trigger" cut by slashing school days and bus transportation rather than teacher jobs.

Five Assembly Republicans sought a legal opinion Tuesday on whether state Controller John Chiang can cut legislative pay.

The five lawmakers asked Attorney General Kamala Harris to opine on whether Chiang has the authority to determine whether a proposed budget is balanced and, if he determines it is not, whether he has the power to freeze pay.

"We are concerned that this issue is likely to return in future budgets proposed by the state Legislature," said the letter, which focuses on the question of authority without seeking to regain the $4,830 in pay that each lawmaker will have lost this month if the Legislature passes a budget sometime today.

Signers were Republicans Donald Wagner of Irvine, Allan Mansoor of Costa Mesa, Diane Harkey of Dana Point, Chris Norby of Fullerton, and Mike Morrell of Rancho Cucamonga.

The letter concluded, "As it is the duty of the California Attorney General to protect and defend the laws of California and act as the state's legal counsel, we respectfully request a formal opinion from your office."

In a separate statement, released Tuesday night, the five Republican Assembly members said the legal question about voters' intent "will eventually have to be decided" and that "we believe the time is now to get that decision."

"We do not ask the Attorney General to rule on the forfeited pay," they reiterated. "We are not seeking salary reimbursement."

Saulo Londono, Mansoor's spokesman, said that his boss along with Harkey and Wagner would like to see the nonpartisan Legislative Analyst's Office -- not a partisan state controller -- be given responsibility to determine whether a proposed budget is balanced.

Robin Swanson, spokeswoman for Democratic Assembly Speaker John A. Pérez, said she was not aware of the Republicans' letter and had no comment on it.

Chiang, a Democrat, blocked legislative pay after establishing a new role for his office, under propositions 25 and 58, to determine whether a legislative budget is balanced.

Legislators typically receive about $260 per day in salary and $142 in tax-free travel and living expenses.

The GOP letter is in keeping with a description of Harris' duties on the AG's web site, which said "she provides legal opinions upon request to designated state and local public officials and government agencies on issues arising in the course of their duties.

"The formal legal opinions of the Attorney General have been accorded 'great respect' and 'great weight' by the courts," the website said.

The AG's office had no immediate comment on the GOP request.

Read the full letter at this link.

State Treasurer Bill Lockyer gave thumbs up today to the budget deal struck by Gov. Jerry Brown and legislative leaders.

Hours before the plan was set for a floor vote in the Assembly and Senate, Lockyer called it a "very important step forward in restoring California government to fiscal good health."

Unlike the budget proposal vetoed by Brown nearly two weeks ago, Lockyer characterized the new pact as "financeable," meaning fiscally viable and sufficient to borrow against.

"Our analysis indicates the plan reduces the need for external cash borrowing by as much as $2 billion, saving significant borrowing costs," Lockyer said in a letter to Brown, Assembly Speaker John A. Pérez and Senate President Pro Tem Darrell Steinberg, all Democrats.

"Perhaps more significantly, this budget, for the first time in recent years, honestly and clearly balances revenues and spending," the treasurer said of the plan, crafted by Democrats.

Lockyer also touted billions of dollars in budget cuts adopted earlier this year, saying the action "makes substantial progress toward eliminating California's large and chronic structural deficit."

Lockyer concluded his analysis by saying, "Many Californians will now confront hardships as a result of the very large cuts in vital services. I know these decisions were extremely painful for you to make.

"Nevertheless, today's budget plan represents a necessary and very important step forward in restoring California state government to fiscal good health."

The new proposal abandons the notion of temporarily extending higher sales and vehicle taxes as a "bridge" to a fall election. Its linchpin is a projection that the state will receive another $4 billion in extra revenue in 2011-12 based on strong tax receipts in May and June.

If revenue falls short, cuts will be triggered, including the possibility of a seven-day reduction in the school year.

The biggest new component of the Democratic budget is a $4 billion assumption of higher revenues in 2011-12, backed by $2.5 billion in "trigger" cuts in case some or none of that money materializes. The "trigger" legislation will be either Assembly Bill 121 or Senate Bill 96, depending upon which house votes first.

According to budget sources, the plan requires Gov. Jerry Brown's Department of Finance to certify on Dec. 15 whether the $4 billion projection is accurate. The department is required to choose between its own forecast and the Legislative Analyst's, whichever is higher.

The "trigger" cuts are essentially in three tiers, based on how much of the extra $4 billion comes in. (We have assigned numbers to the tiers to better explain the system.)

Tier 0: If the state gets $3 billion to $4 billion of the money, the state will not impose additional cuts and roll over any balance of the problem into the 2012-13 budget.

Tier 1: If the state gets $2 billion to $3 billion of the money, the state will impose about $600 million of cuts and roll over the remainder into the 2012-13 budget. The $600 million in cuts include:

-- $100 million cut to UC
-- $100 million cut to CSU
-- $100 million cut to In-Home Supportive Services hours
-- $100 million cut to Department of Developmental Services
-- $80 million cut to public safety programs
-- $30 million cut to community colleges triggering a $10/unit fee hike
-- $23 million across-the-board cut to childcare funding
-- $20 million cut to Department of Corrections and Rehabilitation
-- $16 million cut to California State Library in library grants
-- $15 million cut related to Medi-Cal Managed Care
-- $15 million cut to California Emergency Management Agency
-- $10 million cut to Department of Social Services in anti-fraud grants

Tier 2: If the state gets $0 to $2 billion of the money, the state will also impose as much as $1.9 billion in additional cuts, proportionate to revenues:

-- $1.5 billion reduction to K-12 schools that allows districts to drop seven classroom days. That would lower the required total to 168 days, down from 180 days three years ago.
-- $248 million cut that eliminates school bus transportation
-- $72 million cut to community colleges

All cuts would take effect Jan. 1, 2012, except for the school year reduction, which districts could impose starting Feb. 1, 2012.

Students at California's public colleges and universities should brace for more tuition increases given the budget plan the Legislature is voting on today.

The 2011-12 plan calls for cutting an additional $150 million each from the California State University and the University of California -- for a total loss to each system of $650 million for the year.

"Because cuts of this magnitude inevitably will drive up tuition for public university students and their families, we cannot stand silent," UC President Mark Yudof said in a statement this morning.

"While we recognize the enormity of the fiscal challenge facing the state, we continue to oppose further cuts, and support any efforts that will restore long-term stability to state funding of higher education."

In addition, UC's Hastings College of the Law in San Francisco is slated to lose $1.5 million in the spending plan.

The budget also calls for further cuts to higher education if projected revenue doesn't materialize by mid-December. Colleges and universities will be the first in line to take those cuts under a tiered system Gov. Jerry Brown introduced yesterday.

If the state gets $2 billion to $3 billion of the $4 billion in projected revenues, UC and CSU will each lose another $100 million, and fees at community colleges will go up by $10 a unit, or $300 a year for a full-time student.

"The proposed 'trigger cut' of another $100 million is especially problematic because the trigger won't be pulled until classes for our last semester of the fiscal year have already started and it is too late for campuses to respond in any practical way," said CSU Chancellor Charles Reed. "This makes it impossible to plan and carry out our mission with any stability."

Community college officials also said the potential for mid-year cuts could create havoc on campuses. If the state decides to raise fees after students have paid for the spring semester, college officials and students will face huge hassles, said Dan Troy, vice chancellor of the California Community Colleges Chancellor's Office.

"It's a very messy situation, very administratively difficult," he said.

Editor's note: An earlier version of this post erroneously identified Charles Reed as CSU's president. This post also was updated at 2 p.m. to reflect that the state will evaluate revenue projections in December.

Both houses are scheduled to convene later this afternoon to begin voting on the new majority-vote budget plan announced yesterday by Gov. Jerry Brown and Democratic legislative leaders. A list of bills released by Senate President Pro Tem Darrell Steinberg's office is posted below. Read a rundown of the package at this link.

2011 Trailer Bills Remaining 6-28-11 (2)

Post will be updated as more details become available Tuesday. Last update: 2:15 p.m.

Democratic aides provided details this afternoon on the handshake budget deal between Gov. Jerry Brown and Democratic leaders to bridge a $9.6 billion deficit.

It maintains parts of the package Brown vetoed nearly two weeks ago:
-- $150 million cut each to University of California, California State University
-- $150 million cut to state courts
-- $200 million in Amazon online tax enforcement
-- $2.8 billion in deferrals to K-12 schools and community colleges
-- $300 million from $12 per vehicle increase in DMV registration fee
-- $50 million from fire fee for rural homeowners
-- $1.7 billion from redevelopment agencies
-- $41 million by tapping county office of education reserves
-- Higher tax receipts (now worth $1.2 billion from May and June)

The new budget rejects some parts of that package:
-- $1.2 billion from selling state buildings
-- $900 million from raising a quarter-cent local sales tax
-- $1 billion from First 5 commissions
-- $500 million cut in local law enforcement grants
-- $540 million deferral to University of California
-- $700 million in federal funds for Medi-Cal errors

And it adds the following:
-- $4 billion in higher projected revenues in 2011-12, with triggered cuts
-- 1.06 percentage point sales tax swap that redirects money to local governments for Brown's "realignment" plan rather than to the state. Sales tax rate will still fall 1 percent on July 1.
-- Moves about $1 billion in child care programs (non-preschool) outside of Proposition 98 protection, lowering the guarantee
-- $448 million in unallocated cut to Medi-Cal and Healthy Families
-- $310 million saved by suspending trial court construction
-- $72 million saved by increasing fees to counties for Juvenile Justice
-- $36 million cut in Department of Justice
-- $11.5 million in water fees to pay for State Water Resource Control Board

The biggest new component of the Democratic budget is a $4 billion assumption of higher revenues in 2011-12, backed by $2.5 billion in "trigger" cuts in case some or none of that money materializes. The "trigger" legislation will be either Assembly Bill 121 or Senate Bill 96, depending upon which house votes first.

According to budget sources, the plan requires Gov. Jerry Brown's Department of Finance to certify on December 15 whether the $4 billion projection is accurate. The department is required to choose between its own forecast and the Legislative Analyst's, whichever is higher.

The "trigger" cuts are essentially in three tiers, based on how much of the extra $4 billion comes in. (We have assigned numbers to the tiers to better explain the system.)

Tier 0: If the state gets $3 billion to $4 billion of the money, the state will not impose additional cuts and roll over any balance of the problem into the 2012-13 budget.

Tier 1: If the state gets $2 billion to $3 billion of the money, the state will impose about $600 million of cuts and roll over the remainder into the 2012-13 budget. The $600 million in cuts include:

-- $100 million cut to UC
-- $100 million cut to CSU
-- $100 million cut to In-Home Supportive Services hours
-- $100 million cut to Department of Developmental Services
-- $80 million cut to public safety programs
-- $30 million cut to community colleges triggering a $10/unit fee hike
-- $23 million across-the-board cut to childcare funding
-- $20 million cut to Department of Corrections and Rehabilitation
-- $16 million cut to California State Library in library grants
-- $15 million cut related to Medi-Cal Managed Care
-- $15 million cut to California Emergency Management Agency
-- $10 million cut to Department of Social Services in anti-fraud grants

Tier 2: If the state gets $0 to $2 billion of the money, the state will also impose as much as $1.9 billion in additional cuts, proportionate to revenues:

-- $1.5 billion reduction to K-12 schools that allows districts to drop seven classroom days. That would lower the required total to 168 days, down from 180 days three years ago.
-- $248 million cut that eliminates school bus transportation
-- $72 million cut to community colleges

All cuts would take effect Jan. 1, 2012, except for the school year reduction, which districts could impose starting Feb. 1, 2012.

Gov. Jerry Brown and Democratic legislative leaders announced today that they have reached an agreement on a new majority-vote budget plan.

"We've had some tough discussions, but I can tell you that the Democrats in both the Senate and the Assembly have now joined with the administration and myself and we have a very good plan going forward with the budget," Brown said at a press conference in his office this afternoon.

The proposal, outlined in this post, assumes that the state will bring in an additional $4 billion in revenues in the upcoming fiscal year, based in part on higher-than-expected revenue figures in recent months. If those revenues fail to materialize, steeper cuts to programs including K-12 schools, higher education, public safety programs and In-Home Supportive Services would occur later in the year.

"We have severe trigger cuts that will be triggered and go into effect (without the projected revenues)," Brown said. "And those are real."

Brown vetoed the majority-vote budget that lawmakers approved ahead of the Legislature's June 15 budget deadline, calling the package of spending cuts, funding shifts and one-time fixes "not a balanced solution." Legislators have also lost their pay in the wake of Controller John Chiang's decision that the plan approved earlier this month fails to meet the requirements for pay under the voter-approved initiative allowing the budget to be passed with a majority vote.

The governor, who has been working for months to secure Republican votes needed to hold a statewide election on expiring higher tax rates, said without a deal on his original proposal, leaders will have to "look very seriously" at using the initiative process to qualify a measure to secure future revenues.

Assembly Speaker John A. Pérez said Brown and Democrats "have not wavered in our belief that new revenues are essential" to balance the budget over the long term.

"The conversation has been started and we will keep that conversation going as we move to the ballot next year," Pérez said.

Senate Republican leader Bob Dutton criticized the plan unveiled today as a "hope without change" budget.

"This latest budget is based on the hope that $4 billion in new revenues will miraculously materialize, but does absolutely nothing to change government as usual," he said in a statement.

Read more about the plan here.

Gov. Jerry Brown and legislative Democrats are hashing out a new majority-vote budget that relies on $4 billion more flowing into state coffers but "triggers" mid-year cuts to education and other programs if that money never materializes.

The trigger cuts would replace some of the most dubious solutions in the previous Democratic budget, such as selling state buildings and imposing a quarter-cent local sales tax on a majority vote, according to sources unwilling to be named. If revenues fall short, cuts would hit K-12 schools and higher education, public safety programs and In-Home Supportive Services.

A floor vote could take place as soon as Tuesday, sources said. Brown will hold a press conference with Democratic legislators at 3 p.m. today, his office announced.

Brown's intense focus on a majority-vote plan suggests the governor has moved away from his months-long effort to convince Republicans to approve taxes. Brown press secretary Gil Duran, in an interview with KPCC radio last week, called Republicans "basically moronic" and said they "aren't smart enough to write reforms."

Duran would not say Monday where Brown stands on a majority-vote budget. "There have been some serious meetings, Democratic meetings," he said.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, and Assembly Speaker John A. Pérez met with Brown around noon today, accompanied by their budget aides, but would not say whether they had a deal. Pérez said they were "making progress."

Assembly Republican leader Connie Conway said in a speech today that her caucus is willing to help break the state's budget impasse - if Democrats abandon their call for tax extensions.

Conway suggested that it's time for a new approach, now that Gov. Jerry Brown's attempts to pick off two Republican votes for his own budget proposal have not worked, nor have Democratic lawmakers' attempts to dictate budget solutions.

Speaking to the Sacramento Press Club, Conway said she has made it clear to Assembly Speaker John A. Pérez that her phone lines are open.

"We told him, he knows this, that we're willing to work with him on a budget that does not raise taxes but still could have bipartisan support," the Tulare Republican said.

Playfully, Conway pointed out that legislators do not necessarily have to march in lockstep with Brown, who vetoed Democrats' budget proposal last week.

"People have joked about, 'Who was the last governor who ever had a veto override?' Oh yeah, I remember that," Conway said, without stating explicitly that the answer is Brown, in the 1970s, during his first stint as governor.

Conway did not unveil a new proposal today, but she pitched the "road map" released by Republicans in May that relied on more spending cuts, fund shifts and a spike in state tax revenues to bridge a then-$15.4 billion shortfall.

The GOP plan called for funding education at the same level as Brown proposed in January. It also suggested slicing $1.1 billion from spending for state workers, saving about $1.1 billion by permitting more contracting for state services, and taking $2.3 billion from funds for First 5 children's programs and Proposition 63 mental-health services.

Conway said that Republicans will continue to fight any attempt to raise taxes or to suspend Proposition 98, the state's minimum guarantee for education funding.

The GOP leader left open the possibility of placing onto the ballot a measure to let voters decide whether to extend temporary taxes imposed two years ago. But she dismissed the notion of a "bridge tax" to retain such revenue pending balloting.

"Putting something to a vote, without a bridge tax, is a different conversation than (imposing) a bridge tax and then having a vote," Conway said.

She shrugged off Democrats' criticism of the Republican "road map" as a gimmick-filled approach that would do little to solve the state's ongoing imbalance between revenues and spending.

"It's politics, we all understand that," Conway said of the criticism. "At the Capitol, politics rules."

* Updated at 5:30 p.m. to include Conway's comment about a bridge tax.

Gov. Jerry Brown said this afternoon that he is continuing to negotiate with Republican lawmakers on his budget plan, dismissing Republican statements outside his office as part of a budget "dance" that grows alternatively hot and cold.

However, Brown told a group of builders that if he cannot reach a deal on tax extensions in "the next few weeks ... we'll have to go to an initiative, and it will take the better part of a year."

It was one of at least two times this morning that Brown mentioned "the next few weeks," suggesting budget talks could linger beyond June 30, the end of the fiscal year.

Brown said he had a positive discussion with Sen. Tom Berryhill, one of the Republicans with whom he has been negotiating, as recently as last night.

"I'm not giving up," Brown told reporters after speaking at the Moscone Center. "I will keep working to get those tax extensions. And we will get them, one way or the other."

At a press conference outside Brown's office this morning, Republican lawmakers said they could support an election on taxes if it is accompanied by the pension, regulatory and other government changes. But they are no closer to supporting Brown's bid to continue temporary tax hikes until after a fall election, a central part of Brown's plan.

"The Senate Republicans just had a big press conference out in front of my office saying 'No.' No, they don't want to agree to any tax extensions," Brown told the audience. "Just generally a rejectionist posture. But hey, that's part of the process, part of the dance."

Brown was asked by an audience member if the state might consider modifying Proposition 13, the property-tax limiting measure.

"As a politician I wouldn't say it is," Brown said. "That's the third rail."

Brown said the "core of Prop. 13" is important to Californians and unlikely to be changed "anytime soon."

But he said, "If the taxes are not extended, I believe there will be efforts to accelerate the reassessment of commercial property, or other efforts."

Update: This post was updated with comments from Gil Duran, Brown's press secretary, and GOP caucus spokeswoman Jann Taber.

Hope for a bipartisan budget agreement dwindled today as Republicans and Democrats feuded over whether temporary taxes are needed until a fall election.

Senate Republicans held a press conference in front of Gov. Jerry Brown's office to say that Democrats were blocking an election with their demand for temporary taxes in the interim.

Some Republicans said they are willing to place taxes on the ballot, along with a spending cap and pension cuts. But none are willing to extend vehicle and sales taxes until the election. They said they believe the state's unexpected growth in revenues make that tax "bridge" unnecessary.

Caucus spokeswoman Jann Taber clarified later that not all members of the GOP caucus would support a tax election, but all are in favor of the spending cap and pension proposals.

Republicans also suggested Democrats were using that as an excuse because their labor supporters don't want an election this fall, nor do they want a spending cap or pension reductions on the ballot.

"It's the public unions and the governor who have become the problem in this, not the Republicans," said Sen. Bob Huff, R-Diamond Bar.

Brown's press secretary, Gil Duran, said the Republicans were "grandstanding without solving problems...We could have had regulatory reform, a spending cap and pension reform - without a bridge - in March."

After the GOP press conference, Senate President Pro Tem Darrell Steinberg, D-Sacramento, suggested that Brown's budget plan is all but dead. Democrats are working on a new majority-vote budget and awaiting further cut ideas from Brown.

"Is Plan A dead?" Steinberg said. "I'll leave it to the governor to announce the wake and the funeral services. But we are proceeding to try to develop again the best majority-vote budget we can with the governor."

Controller John Chiang said in an interview on FOX Business Network today that legal action against his decision to withhold legislators' pay "would be ill advised."

Chiang announced yesterday that he would block legislators' pay because the budget approved ahead of last week's legislative deadline for approving a spending plan did not meet the on-time budget requirements set by Proposition 25.

While a challenge to his decision has not been filed, many legislators have questioned the legality of the move to dock their pay.

"Last week when I raised the same issue about the budget that they passed in March not being balanced, nobody challenged it. It's not until I said that this budget where they're not getting paid that people starting challenging any authority," Chiang told host Stuart Varney in an interview that aired this morning.

Watch the full appearance below:

Shortly after Controller John Chiang announced that he would block pay to lawmakers, Gov. Jerry Brown spent about an hour behind closed doors with the Senate Democratic Caucus.

As he exited the meeting, Brown refused to pass judgment on Chiang's analysis. Instead, he looked past the decision and said now it's now time to "set up" the budget and get it voted on by legislators.

Most of the Senate Democrats were frustrated by the controller's announcement, saying that the budget they approved a week ago was indeed balanced. Upon entering the elevator to head back to his office, Brown offered a positive take on his chat with the senators.

"I think we've made a good step forward," Brown said.

Watch all of his remarks below.

Video by by Hector Amezcua / Sacramento Bee.

Word of Controller John Chiang's decision to withhold legislative pay until passage of a balanced budget spread through the Capitol and state offices like wildfire Tuesday, sparking mixed reaction:

Senate GOP leader Bob Dutton, R-Rancho Cucamonga:

"I didn't come up here for the pay....I think he's got to do what he's got to do."

Assemblywoman Joan Buchanan, D-Alamo:

"Can I still pay my bills? Yes. Do I know of legislators that will experience a hardship? Yes. I don't want to see our Legislature get to a point where you either have to be retired or independently wealthy to serve this body."

Sen. Lou Correa, D-Santa Ana:

"The majority, most of us legislators here, work for a living - we're not millionaires. So it's going to be a challenge. But you know what? The voters of the state of California said to pass a balanced budget, and if the experts say the budget is not balanced, we need to go back and work it some more."

Sen. Gloria Negrete McLeod, D-Chino:

"I'm going to exist OK. I always save my money ... It's too bad (Chiang) got embroiled in this. I guess he has to do what he has to do - and we have to do what we have to do."

Assemblyman Tim Donnelly, R-Twin Peaks:

"The people have made it clear, in Proposition 25, that they don't want us to get paid unless we come up with a real budget. I don't think they envisioned a sham budget. They didn't envision a budget with five illegal taxes in it. They want a real budget.

"The people who are complaining about Proposition 25 are the people who pushed to pass it."

Sen. Mark Wyland, R-Solana Beach

"The people asked that we have an incentive to do what they want which is to pass a balanced budget, and I think what this does is tell us, we need to get to work and get this done. The governor was very clear, I don't know all the legal (issues), I'm not a lawyer, so I can't really say it was the right decision, but between the controller and the governor it's a pretty clear message that we need to get to work. That's what the people are asking."

Sen. Tom Berryhill, R-Oakdale:

"I think this is going to put pressure on all of us to get something done."

Sen. Ron Calderon, D-Montebello:

"We are basically being held hostage to vote for the governor's version of the budget. It's a perfect opportunity for political grandstanding for the controller and treasurer. We've done our job and given a balanced budget. The controller and treasurer have approved of them in past. They've never had a problem before. We are being treated like children and punished for politics."

Assemblyman Bob Blumenfield, D-Woodland Hills:

"The Controller is acting without clear legal authority. He has confused having the responsibility to cut checks with having the authority to be a judge and jury on the budget. He signs our paychecks but Proposition 25 does not make him our boss - that role is reserved for the people who elected us. ... If his action stands, it will have grave implications on future budgets. His action suggests that we are not a co-equal, independent branch of government vested with the constitutional authority to craft the budget. And, that's not what the people voted for when they passed Proposition 25."

Assemblyman Mike Gatto, D-Los Angeles:

"Our state government right now reminds me of a troop of boys lost in the wilderness. The goal is to get back to civilization, but the Governor seems hell-bent on forcing four people to take his chosen path, while John Chiang just wants to sit there and beat up on the unpopular kids. It's always been an easy move to bash the disliked - but the truth is that such demagoguery is rapidly becoming cliché, and does nothing to move the state forward. ... I halted a fulfilling private sector career path to enter public service. I now have to explain to my wife and daughter that we won't be able to pay the bills because a politician chose to grandstand at our expense. California has officially degenerated into a Banana Republic, with one branch of government withholding the pay of another. I wonder if the Controller plans on withholding the pay of judges if he disagrees with one of their decisions."

Sen. Sam Blakeslee, R-San Luis Obispo

"I applaud Controller Chiang on this difficult decision. I authored SCA 12 to clarify his constitutional authority and duty to certify when a budget is or is not balanced. Government is a system of checks balances. Utilizing the Controller's office to finally put a halt to the budget games will return accountability to our budgeting process and force the legislature to do its job honestly."

Assemblyman Nathan Fletcher, R-San Diego:

"I support Controller Chiang's decision to withhold pay for legislators until we can pass a balanced budget that addresses long-term, structural fixes that are sorely needed. When regular Californians don't do their job, they don't get paid. The legislature is clearly not doing its job, and this should refocus us on creating good-paying jobs for Californians, developing innovative solutions that work and moving California forward."

Sen. Noreen Evans, D-Santa Rosa

"The Controller has never before had a role in crafting the budget. Through his action today, he has inserted himself into the legislative process and precipitated a constitutional crisis, one where the balance of powers in our constitutional form of government has shifted considerably and the separation between the Legislative and the Executive branches of state government has been breached. Must future legislatures submit their budget proposals to the State Controller to obtain his approval before passage? Additionally, there is no certainty regarding the limits on the Controller's powers--for example, when must he make his determination? Controller Chiang delayed a week before deciding the budget did not meet with his approval. By inserting himself into the budgeting process and substituting his judgment for the Legislature's, the State Controller has set a dangerous legal precedent."

Assemblyman Brian Nestande, R-Palm Desert:

"Today's action by the State Controller shows that the budget passed by his fellow Democrats on a majority vote was not balanced and needs serious work. His quick decision proves that his arguments in opposing my Assembly Constitutional Amendment 13 that would require him to determine if a budget is balanced are false. Far from requiring more staff to conduct a budget analysis, the Controller was able to render his decision with existing resources. The Legislature should pass ACA 13 to ensure that the Controller analyzes future budgets to determine if they are balanced."

Assemblywoman Diane Harkey, R-Dana Point

"The Legislature's job is to craft and pass a budget that works, not a document that merely gets enough votes to pass. I have been and remain ready and willing to help the Democrat majority leadership and members to fulfill the commitment they made to the people with Prop 25, the majority vote, on-time budget, with or without pay."

Editor's Note: This post was updated to reflect that Assemblyman Nathan Fletcher is a Republican, not a Democrat. Updated at 4:30 p.m. Paresh Dave, Torey Van Oot and Kevin Yamamura contributed to this report.

State Controller John Chiang concluded that the budget Gov. Jerry Brown vetoed contained $89.75 billion in spending, but provided just $87.9 billion in revenue, making it $1.85 billion short.

Find his full analysis here.

Post will be updated as news develops.

Controller John Chiang announced today he has blocked pay for lawmakers, rejecting his own party's spending plan as insufficient to satisfy a voter-approved law on timely budgets.

In doing so, the Democratic controller exercised unprecedented authority, establishing a new role for his office under Propositions 25 and 58 to determine whether a legislative budget is "balanced."

"My office's careful review of the recently-passed budget found components that were miscalculated, miscounted or unfinished," Chiang said in a statement. "The numbers simply did not add up, and the Legislature will forfeit their pay until a balanced budget is sent to the Governor."

The controller said he determined that the Democratic budget spent $89.75 billion but only provided $87.9 billion in revenues, leaving a $1.85 billion imbalance.

Assembly Speaker John A. Pérez said in a statement that he believes the controller "was wrong."

"The Controller is, in effect, allowing Legislative Republicans to control the budget process and I believe that's a very unfortunate outcome that is inconsistent with the intent of Proposition 25," said Pérez, D-Los Angeles. "In the coming days, we will be taking additional budget action informed by the Controller's analysis, and consistent with the values of the budget we passed last week."

Chiang has determined that the majority-vote plan Democrats sent to Gov. Jerry Brown last week was not a "balanced" budget and therefore did not meet lawmakers' constitutional obligation for timely passage of a spending plan. Brown immediately vetoed the budget Thursday, less than 16 hours after passage, dubbing it "not a balanced solution" and noting that it relied on legally questionable solutions.

In his determination, the controller highlighted one component of the budget that he believes ran afoul of the state's Proposition 98 minimum guarantee for school funding. The Democrats' budget underfunded K-12 schools and community colleges by $1.3 billion, Chiang said. John Mockler, an education consultant who wrote Proposition 98, said in an interview last week the Legislature would have to provide that money if courts intervene or at some future date if revenues come in as projected.

Chiang's office said it is not possible to underfund schools without suspending Proposition 98, a politically risky vote that requires two-thirds support of the Legislature. Chiang also said the Legislature failed to pass the necessary bills to carry out hospital fees, a managed-care tax and a $12 hike in registration fees.

In his analysis, Chiang actually ignored some of the most legally dubious solutions, such as a $1.2 billion sale of state buildings and a quarter-cent local sales tax raised by majority vote.

"While the vetoed budget contains solutions of questionable achievability and some to which I am personally opposed, current law provides no authority for my office to second-guess them in my enforcement of Proposition 25," Chiang said. "My job is not to substitute my policy judgment for that of the Legislature and the Governor, rather it is to be the honest-broker of the numbers."

The controller's review suggests that if lawmakers go back and write their budget with cleaner legislation, he will rule differently next time. In doing so, Chiang did not preclude lawmakers from again seeking the building sale or quarter-cent sales tax.

"Most of us are going to have to limit our expenses," said Sen. Ron Calderon, D-Montebello. "To date, we've lost $2,000. We've done our job and given a balanced budget. The controller and treasurer have approved of them in the past. They've never had a problem before. We are being treated like children and punished for politics."

Sen. Tom Berryhill, R-Oakdale, one of four Republicans whose vote Brown is targeting, said, "I think this is going to put pressure on all of us to get something done."

Brown's veto had no effect on legislative pay. But questions raised by Brown and Treasurer Bill Lockyer about the plan's viability appeared to force Chiang's hand, and the controller reviewed the proposal to determine whether it was balanced.

Brown issued a brief statement Tuesday, "The Controller has made his determination. We should all work together to pass a solid budget."

Lawmakers approved more than $14 billion in cuts, fund shifts and borrowing in March, concentrating reductions in higher education and the state safety net. An influx of higher revenues also helped reduce the once-$26.6 billion state deficit.

But the state still faced a $9.6 billion gap this spring. Brown wanted to bridge that difference with a tax election, as well as extensions in sales and vehicle taxes until voters could decide.

When the governor was unable to secure the necessary GOP votes before the June 15 deadline, Democratic lawmakers cobbled together an alternative plan that included a few more cuts, but relied more on questionable maneuvers.

Jim Sanders, Paresh Dave and Torey Van Oot contributed to this report.

It's not just Democrats who think Controller John Chiang should continue paying lawmakers.

Sen. Bob Huff, R-Diamond Bar, the Senate GOP's point person on budget matters, said yesterday that Chiang shouldn't be able to block pay. He said it puts the controller in the position of penalizing members for standing up for their principles.

"I know the populist thing to say is we shouldn't get paid, but the reality is, we're working hard or even harder than we ever have been," Huff said. "You can't ask someone to compromise values but put them in the poor house for standing up for their values."

That was an argument similar to one made Monday by Senate President Pro Tem Darrell Steinberg, D-Sacramento, on legislators' personal conflict of interest.

Of Chiang, Huff noted, "I don't know what his legal role is. I understand his political role. As an elected official who aspires for higher office, getting headlines is not a bad thing."

Huff said as of yesterday afternoon, Republicans hadn't heard from Gov. Jerry Brown, who said last week he would "move heaven and earth" to secure the necessary four Republican votes to strike a bipartisan budget deal.

Huff said he doesn't see Republicans agreeing to a temporary tax bridge, extending higher taxes on vehicles and sales to the election, as Brown and Democrats demand. It seems unlikely that Democrats will agree to a deal without the bridge, given that they stand little chance of winning at the ballot box without it.

"So far, the guys have been adamant that that not happen," Huff said of the tax bridge. "I don't see that happening. But as the clock runs out, you never know what's going to happen."

It wasn't any legislator's favorite question Monday, but it was the one reporters kept asking: Should you continue receiving pay?

After emphasizing he was more concerned about potential deep cuts in the wake of Gov. Jerry Brown's veto, Senate President Pro Tem Darrell Steinberg, a lawyer, offered arguments for why Controller John Chiang should pay lawmakers.

Chiang, a Democrat in charge of issuing paychecks, is weighing whether to issue salary and living expenses under a new voter-approved law that docks legislative pay for each day the budget is late. Democratic lawmakers passed a majority-vote budget on Wednesday, the constitutional deadline, but Brown vetoed it immediately while questioning its legal viability and balance.

The law itself, Proposition 25, is silent as to whether the budget must be "balanced," but Chiang said earlier this month that it should be read in conjunction with another law requiring a balanced budget. The controller is reviewing the budget bills and is expected to decide this week on whether to issue pay.

Steinberg's first argument had to do with separation of powers. He said that it would be bad precedent to allow a controller - or anyone else from the executive branch - to decide on whether lawmakers should get paid.

"Forget any of us as individuals, it is a bad precedent for anyone in the executive branch to question the quality of a budget passed by the legislators," Steinberg said after a brief Monday floor session. "Because to do so shifts the balance of powers in what is supposed to be coequal branches of government in a way I think is dangerous."

"Think about if there was a governor or treasurer or controller from the other party, think about that," he added. "And they were unhappy with the quality of a budget the Legislature passed. They would then have the ability, if Proposition 25 were to be interpreted in a way some suggest, to say not good enough. We withhold your pay until you make all of the decisions and all of the cuts that we believe are appropriate."

A separate issue, Steinberg said, is whether the controller's interpretation undermines the spirit of the state's conflict of interest law.

The Senate leader noted that lawmakers have a duty to abstain from voting on matters in which they have a personal financial interest. He suggested that if the controller withholds pay, then lawmakers may decide to slash programs just to benefit their own pocketbooks.

"Think about how all that could be turned on its head here if, in fact, we have to make a decision, choices, that have real impact when it comes to cuts on the people of California and our own well being," Steinberg said. "I don't think that even the authors of Prop 25 ... would see that as any kind of healthy development for California. We ought to make the decisions that we make on the level of cuts on the merits."

Torey Van Oot contributed to this report.

California Chamber of Commerce CEO Allan Zaremberg said he still believes there's time for a "comprehensive" solution to the state budget in the wake of Gov. Jerry Brown's veto.

Labor unions have become less than enthusiastic about the idea of a fall election on taxes and long-term changes to pensions and spending, recognizing the uphill battle they would face with voters. David Kieffer, head of Service Employees International Union California State Council, said his group would have to think twice about funding a tax campaign.

But Zaremberg suggested that if lawmakers and the governor strike the right deal, some of his members would be willing to finance the effort.

"I think I have some members who would like to see a comprehensive solution so they're not in the crosshairs for targeted taxes," Zaremberg said. "And I can see the business community saying for the good of the community, let's get this behind us once and for all. We're tired of watching Fox News get their entertainment from bashing California."

After vetoing Democrats' majority-vote budget, Brown said last week he would "move heaven and earth" to find the necessary four Republican votes to strike a bipartisan deal on taxes and long-term changes.

Major businesses are concerned that lawmakers or unions would push for targeted taxes on oil and other industries should Brown's package of general tax extensions fail. As part of budget talks, Republicans are also pushing for relaxed environmental requirements and required analysis of new laws and regulations for economic impacts, changes that would help businesses.

Zaremberg thinks winning a fall campaign is "doable, but we have to have the right mix of provisions to create a formula the public can trust. What we learned in 2009 was, though there were a lot of problems like borrowing from the lottery, the mere fact that the Legislature puts it on the ballot creates some skepticism from voters. So that's one of the things we have to overcome."

Brown said last week that if he were able to strike a deal for a fall election, he expected support from a variety of groups. Some thought he was hinting at business support, in addition to traditional Democratic allies like labor unions.

"I think if these are tax extensions, we have a very good chance to win," Brown said. "And I'm looking for a very broad coalition that doesn't derive its source of financial support from one organization, but a multitude of California organizations that care about our future. And that's the way the initiative will be funded."

Gov. Jerry Brown said this afternoon that Senate leader Darrell Steinberg's decision to stop considering gubernatorial appointees in the wake of his budget veto was a "small price to pay" for his action.

"If I went along with that budget, then next year and the year after we'd be in the same damn mess, and I am committed to avoiding that," Brown told reporters in Blythe, where he touched down for the ceremonial groundbreaking of a solar power plant.

For the first time in his young administration, the Democratic governor is facing open criticism not only from Republicans, but from Democratic lawmakers who passed the spending plan he rejected one day ago. After questioning the governor's budget tactics Thursday, Steinberg is halting consideration of Brown's appointees.

Other Democrats complained, too. Brown described their reaction to his veto as "mild," though their frustration was on his mind.

"I came out here from our state Capitol at a time when lots of fur is flying, and lots of howls of execration: 'Oh no, you can't do that,'" Brown said. "Well yes, I did veto the budget, and yes, we are going to have fiscal discipline, and yes, we're going to be the world leader in solar energy and all the jobs that that can create."

Brown appeared with U.S. Secretary of the Interior Ken Salazar and U.S. Bureau of Land Management Director Bob Abbey on the sun-soaked site just west of the Colorado River. Specks of drifting sand clung to participants' suits.

The Blythe Solar Power Project is expected to create more than 1,000 jobs and generate enough electricity for 300,000 homes. It is the largest such project in the world.

Brown said the occasion was particularly significant coming "on the day that I had to veto the entire state budget for the first time in the history of California." He said it is an indication the state can "both exercise fiscal discipline and also give full vent to our imagination and make commitments to investments that create California jobs and deal with our energy needs."

It was hot outside, but Brown said no warmer than in Sacramento.

"And Sacramento is hot in more than climatological ways," he said.

Among a small group of protesters was Jesus Figueroa, who played a gourd and sang Lakota prison songs. He said the project would destroy significant geoglyphs, a claim Solar Trust of America, the company building the project, said is untrue.

Controller John Chiang's office said Friday that his office should finish crunching budget data "early next week," after which Chiang expects to conduct a "quick" analysis to decide whether to pay lawmakers under Proposition 25.

In an email from Chiang spokeswoman Hallye Jordan, some interesting points came up.

First, under the 2004 voter-approved balanced budget requirement, the Department of Finance has routinely assessed whether projected revenues equal or exceed budget expenditures. But Finance is not doing so this year because Gov. Jerry Brown vetoed the budget for what is believed to be the first time in state history.

"So it's left to the Controller's office -- solely because of Proposition 25 prohibiting pay to lawmakers after June 15 if they fail to enact a balanced budget," Jordan wrote.

However, Jordan said, "There is no authority to consider the validity of those projections or expenditures, only that they pencil out."

It's not clear whether that means the controller believes he has to trust the projection of the Legislature, but it does suggest he believes his interpretative powers are limited.

Making this issue even trickier is the fact that the Legislature itself inserts its own revenue projection in the main budget bill. Assembly Bill 98, which Brown vetoed, has a provision that says "the estimate of General Fund revenues for the 2011-12 fiscal year pursuant to (Proposition 58), as passed by the Legislature, is $87,803,300,000."

If the controller believes he has no power to challenge this calculation and the budget appropriations add up to less than this amount of money, he could say lawmakers should be paid, then cite his limited interpretive powers. One legislative source not authorized to speak publicly said he believes this provision in AB 98 alone backs lawmakers' case for pay.

The decision will likely be tied up in court. The Howard Jarvis Taxpayers Association sent Chiang a letter Friday threatening to sue if the controller pays lawmakers. But if Chiang doesn't pay lawmakers, it wouldn't be surprising to see at least one lawmaker file suit against the controller.

Update (4:15 p.m.): While salary paychecks aren't issued until June 30, Jordan said the Controller's Office is withholding $142-a-day per diem from lawmakers until Chiang makes a final decision.

Jim Sanders contributed to this report.

PHOTO CREDIT: John Chiang, California state controller at The Sacramento Bee's Capitol Bureau in downtown Sacramento on Wednesday, July 14, 2010. Hector Amezcua, Sacramento Bee.