School funding stalls Calif. budget negotiations

SACRAMENTO, Calif. — Gov. Arnold Schwarzenegger sounded an optimistic note Thursday about negotiations aimed at solving California’s $26 billion budget deficit, a day after Democratic lawmakers said talks had stalled over education funding.

At issue is how to repay schools some $11 billion once the economy bounces back. Schwarzenegger was trying to get negotiations back on track and said the disagreement over education funding would not hold up a deal.

“You know, negotiations stall and sometimes new things come up and one has to reassess, and then you continue on again,” Schwarzenegger told reporters outside his Capitol office. “There’s a will there in this building for both parties to get this done. I have not seen anything else, and so we are going to make an effort again to get it started again.”

Schwarzenegger had yet to talk with the Democratic leaders by midday, and no official meetings had been scheduled.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, and Assembly Speaker Karen Bass, D-Los Angeles, said they want to ensure that schools are repaid the billions of dollars they are losing as the recession erodes revenue coming to the state.

When the economy will recover and whether California’s tax revenue will rebound to pre-recession levels are open questions. Lawmakers and governors may be fighting over school funding for years to come.

The Democrats said Schwarzenegger could guarantee future money for schools with a statutory change. The governor’s administration disagreed, saying the changes sought by Democrats would require voter approval because they would alter Proposition 98, a voter-approved initiative that guarantees a minimum level of education funding.

“When times get better, we want to guarantee that education and kids get paid back the money that they are owed,” Steinberg said late Wednesday night after negotiations between Schwarzenegger and the four legislative leaders had finished.

Republican legislators said they wanted to concentrate on the current problem — the funding shortfall for the fiscal year that began July 1 — rather than future scenarios.

The attempts to close the massive deficit come as the state has begun issuing IOUs to contractors and government workers are being furloughed three days a week.

Without a balanced budget by late August, IOUs may have to be issued to state employees and contributions to the state pension funds may be jeopardized.

Because Republicans will not vote for further tax increases, the deficit must be closed with spending cuts and a variety of other measures.

Schwarzenegger and lawmakers are likely to cut about $15 billion in spending, including deep cuts to education, health care and welfare. State employees would have to accept pay cuts in the form of continued furloughs, while college students attending public colleges and universities will have to pay higher fees.

Republicans and Democrats differ over how to address the remaining $11 billion. It could include borrowing from local governments, asking taxpayers to speed up tax payments and using billions in federal stimulus money.

Schwarzenegger also wants to raise about $1 billion by selling a portion of the state worker’s compensation insurance business.

Associated Press Writers Judy Lin and Samantha Young contributed to this report.