The state Legislature finally approved a budget compromise that nearly closes a $26.3 billion deficit, while saving state parks and sparing local governments from further cuts. But the deal came close to being derailed when state Republican leaders grew angry over a plan by Governor Arnold Schwarzenegger to lessen California's prison population by about 27,000 inmates. In the end, however, it appeared that the GOP was more concerned about looking tough on crime than actually holding up the budget.
The state had become the laughingstock of the nation as it issued IOUs to pay its debts. Finally, lawmakers struck a deal, but some Republicans said they would never go along with the plan to slash $1.2 billion from the Department of Corrections. Schwarzenegger's proposal would have lowered the state's prison population from about 168,000 to 141,000 over time by converting some non-violent felonies into misdemeanors and allowing more low-risk offenders to spend their time outside prison wearing ankle monitors.
The GOP leadership backed off its threat after Democrats and the governor promised that the prison-reform plan would be negotiated separately from the budget in August, the San Francisco Chronicle reported. The about-face effectively means the governor's proposal likely will pass because it will only require a simple majority vote to get through the Legislature separately — and Republicans don't have enough votes to block it. So by agreeing to separate the plan from the budget, the Republicans essentially decided to go along with it. In other words, Republicans were more concerned about not voting for prison reform than killing it.
The deal also requires most state offices to close three times a month. The closures not only will result in longer lines, but amount to a 15 percent pay cut for state workers. Yet even with the cuts, the deal fell short of closing California's $26.3 billion budget gap. As a result, the state's financial problems will continue next year, the Chronicle reported. In reaching the compromise, lawmakers used a series of accounting gimmicks along with significant cuts to state services. The governor plans to use his line-item-veto powers to achieve more cuts and balance the budget overall.
The budget deal also was threatened by city and county governments because of a plan by state lawmakers to raid local coffers. The Alameda County Board of Supervisors even voted last week to endorse a plan to sue the state. But then after intense lobbying from big-city mayors, the Legislature tabled a proposal to take nearly $1 billion in local gas tax revenues. The budget compromise also set aside the governor's controversial plan to close nearly all of California's 200-plus state parks.
More Troubling Housing News
The good news about the budget was offset by more troubling reports on the housing crisis. Although the number of foreclosures in the Bay Area dropped in the past few months, the total number of defaults jumped significantly. The development raised fears that the housing downturn, which looked to be easing, may actually worsen. There were nearly 20,000 default notices issued in the Bay Area from April through June, a jump of 7.3 percent over last year, the Chron reported. Economists were especially worried because a significant portion of the increase occurred in wealthier areas that had been previously insulated from the foreclosure crisis. That means that more middle- and upper-middle-income residents are having a tougher time making ends meet. If the trend continues, it could lead to a widening of the housing crisis, putting any hope of an economic recovery further in doubt.
Oakland Voters Approve Pot Measure
In Oakland, city officials avoided more financial problems when voters approved four budget measures in last week's election. Voters agreed to raise taxes on medical marijuana and hotel rooms, and slash the amount of money the city spends on after-school programs. Voters also agreed to close a loophole that allows corporate entities to avoid property transfer tax on real estate when the ownership of the entity changes during a merger, consolidation, or acquisition.
All four measures won with at least 71 percent of the vote. The outcome could help the city's general fund by $11.2 million next year. It was welcome news following the recent revelation that the city likely will receive less than a third of a $67 million federal grant it requested and may have to lay off police officers.
Speaking of Oakland cops, the police officer's union appeared ready late last week to approve a 7.5 percent cut in compensation, according to the Oakland Tribune. Other city employee unions agreed to a 10 percent reduction, but negotiations with the police were more difficult because the cops' union already had a signed contract, while the other unions were negotiating new ones. ... A development team led by politically connected businessman Phil Tagami won approval from the Oakland Port Commission to redevelop the port's half of the former Army Base. Tagami also is the frontrunner to develop the city's half, although a group of city employees wants him to partner with a competing development team, according to the Tribune. Tagami plans for industrial uses and port support services at the base, while the other team wants to build a giant retail center. ... And the Chron reported that Dianne Feinstein and other Congressional moderates and Blue Dogs are holding up President Obama's health-care reform plans. The longtime senator from California says she's worried about the long-term costs of the plan.
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