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Scenarios: How California budget row may shake out


California Governor Jerry Brown introduces his budget proposal in Sacramento, California January 10, 2011. REUTERS/Max Whittaker
California Governor Jerry Brown introduces his budget proposal in Sacramento, California January 10, 2011. REUTERS/Max Whittaker

SAN FRANCISCO (Reuters) - The outlook is not bright for the cornerstone of California Governor Jerry Brown's state budget plan, a ballot measure that would extend tax increases that expire this year.

Brown and fellow Democrats who control the legislature cannot find Republicans to vote for legislation that would put a tax measure to voters in a special election in June.

Brown has proposed using revenue from the tax extensions and spending cuts to balance the state's budget, which faces a nearly $27 billion deficit through mid-2012.

Lawmakers last week approved deep spending cuts but Republicans are holding firm against a tax measure, saying it is up to Brown to give them something notable in exchange if he wants their help in rushing a measure onto the June ballot.

Brown needs Republican votes fast to pull off a June special election. Here are scenarios of what may happen next:

FOUR REPUBLICAN JOIN DEMOCRATS

Brown is four votes away in the legislature from putting a tax measure to a referendum in June. To get the votes -- two each in the Assembly and state Senate from Republicans -- he could agree to back policy changes urged by Republicans and get Democratic lawmakers to support the changes.

A group of Republicans that has negotiated with Brown has proposed overhauling public pensions, scaling back regulation and putting a hard cap on state spending. The talks, however, have broken down.

With two-thirds support in both chambers of the legislature for a measure, Brown would quickly crank up California's special elections machinery. Attorneys would need to vet a measure, translations of approved ballot language would follow and election officials would need to prepare for election day.

Brown had aimed to have his overall budget plan approved by March 10 in order to hold a referendum on a tax measure on June 7. If the legislature does approve a measure this week or next, a referendum on it may be possible in late June.

Last, Brown would need to convince voters to support the measure. A recent poll shows that support among likely voters for extending tax cuts has dipped below a majority.

DEMOCRATS PURSUE TAX HIKE ALONE

Democrats could advance a tax measure to the ballot on their own with legal maneuvering. That would not play well in a special election because California's Republican voters tend to be more likely to take part in special elections than Democrats, who dominate in general elections.

Brown initially said he would not consider such a path.

REGROUP IN NOVEMBER

Brown may now be looking to an initiative for a tax measure for November instead of pressing for legislators to set a June special election, the Sacramento Bee has reported. That would buy him more time but it would be no easy fix.

If he bypasses lawmakers with an initiative for a measure, voters' signatures would need to be gathered to qualify it for the November ballot. The process is time-consuming and expensive, raising the question of who would pay.

Brown could use untapped funds from his campaign last year. Public employee unions may help foot the bill -- but then anti-tax activists would use that against a measure.

Opponents also would point out the tax increases Brown has proposed extending will have expired by November. Supporters of the measure would then be selling tax increases, not more politically palatable tax extensions.

ALL SPENDING CUTS, NO TAX HIKE

Brown has said that if lawmakers do not advance a tax measure to the ballot or if voters reject one, California's government could face an "all cuts" budget that would reduce the state's $86.6 billion general fund budget for the current fiscal year by 31 percent.

Last week lawmakers approved spending cuts and other measures that address roughly half of California's shortfall. Tackling the other half would require cutting into popular education and public safety programs.

Some cuts could be dramatic, such as lopping a few weeks off the school year.

Brown, despite his pledge not to, may also be forced to dig into the bag of accounting tricks agreed to by lawmakers and previous Governor Arnold Schwarzenegger during their many budget battles to help balance the state's books. Or he may have to come up with new budget gimmicks.

(Reporting by Jim Christie, editing by Peter Henderson and Bill Trott)

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