When Gov. Arnold Schwarzenegger called lame-duck lawmakers back, he was hoping experience and leadership would empower the Legislature to address the state's dramatic revenue drop.
Instead, he found lawmakers acted like kindergartners.
Republican state lawmakers on Tuesday blocked the Democrats' $17 billion proposal to address part of California's fiscal meltdown, refusing to support tax increases in a weak economy. Meanwhile, Democrats withheld economic incentives that GOP members say are needed for businesses to stay competitive.
"You could see it's like kindergarten up there, pointing fingers at each other," Schwarzenegger said. "They did not live up to the challenge of what they ought to do."
The Republican governor said he will now task the new batch of lawmakers with another special session once they are sworn in Dec. 1.
California's elected leaders are under pressure to make budget changes midyear because the state is experiencing a steep revenue drop caused by the troubled housing market and meltdown on Wall Street. Budget analysts project a $28 billion deficit over the next 19 months and warn the state will run out of cash in February unless the governor and lawmakers make corrections.
Earlier this month, Schwarzenegger called lame-duck lawmakers back to the Capitol, hoping experienced Republicans would accept a combination of spending cuts and new taxes to remedy the state's cash flow in the spring.
Schwarzenegger wanted $4.5 billion in cuts and called on lawmakers to force state employees to take a day off each month without pay and give up two holidays to help reach that goal. Acknowledging that cuts alone weren't enough to deal with a steep drop in revenue, he proposed $4.7 billion in tax hikes, including a three-year, 1½-percentage-point increase in the sales tax.
When negotiations between the leaders failed to advance after 2½ weeks, Democrats put forth their own proposal centered on restoring the state's vehicle license fee, which Schwarzenegger cut to .65 percent when he took office in 2003. The Democrats' plan to resume taxing 2 percent of a vehicle's value would raise an estimated $5.7 billion by the end of the next fiscal year.
Schwarzenegger opposed that plan, and GOP leaders said they believed the state's fiscal challenge could be fixed without taxes, primarily through selling state assets, collecting outstanding debt and streamlining government. But it's unclear whether their suggestions would be enough to fill a $28 billion hole because Republicans have not offered their own plan, which would have provided detailed figures.
Assembly Speaker Karen Bass, D-Los Angeles, said she was disappointed that termed-out Republicans refused to step out of their ideological corners and accept a combination of $8.1 billion in cuts and $8.1 billion in tax increases.
She and other Democrats warned that doing nothing left the state on track for a cash derailment this spring.
"We only have a couple of months before the state runs out of cash," Bass said. "And we put forward a very responsible package ... And so to vote no on cuts, vote no on revenues is ... obstructing our progress."
Schwarzenegger called Tuesday's special legislative session vote a "total failure" of the Legislature, saying Democrats didn't provide an economic stimulus proposal while chastising Republicans for not presenting their own plan.
While Democrats hold a majority in the Legislature, they need some GOP support to muster the two-thirds votes required to approve tax increases.
At a gathering outside the Capitol, Republicans pressed for budget reform in the form of a spending cap and non-budget-related items such as more flexible work schedules for businesses to save on overtime and a delay in greenhouse gas regulations.
"When the market is down, when the economy is down, when people are struggling, the last thing we should do is raise taxes on them," Minority Assembly Leader Mike Villines, R-Clovis, said after Tuesday's vote.
Democrats, meanwhile, rejected Schwarzenegger's proposal for a temporary 1½ percent sales tax increase, saying it would hurt low-income families more. Their package included $8.1 billion in cuts, $8.1 billion in new revenues and $800 million in other solutions.
Besides raising vehicle licensing fees, Democrats proposed a temporary suspension on adjusting state income tax brackets to keep up with inflation. The suspension would raise $2.4 billion over the next 19 months.
The move would have meant that people making $40,000 to $50,000 would have had to add $79 to their annual adjusted gross income when filing their taxes.
Among other cuts, Democrats said they would accept $2.5 billion less in public school funding in the current year, reduce college funding by 10 percent and suspend cost-of-living increases for poor families and seniors.
State workers, who are currently negotiating labor contracts, would also be asked to make unspecified concessions worth $658 million through June 2010.
The Assembly's incoming budget committee chair, Assemblywoman Noreen Evans, D-Santa Rosa, said the state's fiscal problem will dwarf last summer's record-long budget stalemate.
"If you thought what happened this summer was difficult, this is much, much worse," Evans said.