California Politicians Making Progress but "Biggest and Hardest Decisions Remain"

There is still no breakthrough as California Politicians Negotiate to Close Deficit.

California Governor Arnold Schwarzenegger and legislative leaders negotiated through the weekend, making progress while reporting no breakthrough in solving the state�s $26 billion budget deficit that�s left the most-populous U.S. state issuing IOUs to its creditors.

The meetings, held July 11 and yesterday in Schwarzenegger�s Sacramento office, failed to produce a consensus on how to slash government spending to compensate for a drop in revenue brought on by the faltering economy. Democratic legislative leaders said they were optimistic after talks broke down last week.

�We have several more days to go,� Democratic Assembly leader Karen Bass told reporters during a break in the meetings yesterday. �What I think is most important is that talks have not broken down.�

California this month began issuing IOUs to pay some of its bills, a step taken only one other time since the Great Depression, because of political stalemate over a gap in the $100 billion annual budget.

Schwarzenegger, a Republican, has repeatedly said he won�t endorse another round of tax increases. Instead, he�s proposed deep cuts to spending on schools, health insurance programs and welfare, and sought to link the passage of the budget to measures he says would crack down on fraudulent claims for state aid. Democrats have bristled at the scale of the cuts, saying they would deal a blow to residents already reeling from the economic recession.

Assembly Republican leader Sam Blakeslee, who represents San Luis Obispo, said the negotiations have yet to deliver agreement on the magnitude of cuts needed.

Nor have they dealt with Schwarzenegger�s proposal to suspend a voter-approved law that guarantees minimum funding levels for public schools, he said. That suggestion has drawn fire from the California Teachers Association, which represents more than 340,000 school employees.

�It�s premature to declare victory,� Blakeslee told reporters. �The biggest and hardest decisions are before us.�

Unless and until California addresses the problems of bloated unneeded programs, union pay scales, and particularly the issues of pensions and benefits, the legislature will have solved nothing. Now is the chance to address those issues but the safe bet is that legislators will once again snatch defeat from the jaws of victory by postponing hard decisions on the real issues.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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